Analyzing Duke Energy’s Valuation ahead of Its 2Q16 Earnings



Duke Energy’s valuation

The valuations of almost all of the utilities peaked to new highs this year due to their sharp ascent. Currently, Duke Energy (DUK) is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 11x. Its five-year historical average EV-to-EBITDA multiple stands at 10.5x. The industry average is at 10.6x.

The EV-to-EBITDA multiple is a valuation metric used to indicate whether a stock is overvalued or undervalued, regardless of capital structure.


By comparison, Southern Company (SO) has a multiple at 11.3x, while NextEra Energy’s (NEE) multiple is slightly on the higher side at 11.5x.

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Duke Energy’s forward EV-to-EBITDA multiple is around 10.3x. The fact that its forward multiple is lower than its current multiple indicates expectations of a higher EBITDA in 2016. Almost all of the utilities have lower forward EV-to-EBITDA multiples than their current multiples. This suggests expectations of better earnings this year.

Duke Energy’s towering valuations were mainly prompted by its more than 20% rally in 2016. The Utilities Select Sector SPDR ETF (XLU) gained nearly 25% since the start of the year.

PE multiple

Historically, US utilities have generally traded around a PE (price-to-earnings) multiple of 15x–17x. After an epic ascent this year, utilities’ PE multiples have surpassed 20x. NextEra Energy and Duke Energy are trading at PE multiples of 22.1x and 19x, respectively.

In the final part of this series, we’ll look at analysts’ recommendations for Duke Energy ahead of its 2Q16 earnings release.


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