29 Aug

Analyzing Exelon’s Valuation after Its Recent Correction

WRITTEN BY Vineet Kulkarni

Exelon’s valuation

As of August 26, 2016, Exelon (EXC) is trading at an EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 7.8x. Its five-year historical EV-to-EBITDA average is 7x. The industry average is around 8.3x.

EV-to-EBITDA is a valuation metric that indicates whether a stock is overvalued or undervalued regardless of its capital structure.

Exelon is trading at a fair valuation compared to last month. This change is more or less due to its sharp correction in August.

Analyzing Exelon’s Valuation after Its Recent Correction

Peer comparison

FirstEnergy (FE) is trading at an EV-to-EBITDA multiple of 8x. Entergy (ETR) is trading at a multiple of 7.6x, and Public Service Enterprise Group (PEG) has a multiple of 8.5x.

Exelon’s forward EV-to-EBITDA is around 8.7x. It’s higher than the current multiple, which indicates that the company’s EBITDA may be lower later on in 2016.

PE for hybrid utilities

Exelon is trading at a PE (price-to-earnings) multiple of 13.6x. FirstEnergy and Public Service Enterprise Group are trading at 11.1x and 15.6x, respectively. Hybrid utilities’ average PE is 16x. Exelon’s forward PE is 15x.

Exelon is still trading at a discount to its industry average. However, the stock may continue to display weakness due to changed sentiment in the sector. Hybrid utility stocks have shown steeper correction than their regulated peers. Investors are looking for profit booking in riskier utility stocks. Also, increased chances of an interest rate hike this September may weigh heavily on utilities moving forward.

Latest articles

McDonald’s (MCD) competition includes large international and national food chains as well as regional and local retailers of food products.

The restaurant industry is susceptible to a wide array of risks of macro and micro factors. As a huge global brand, McDonald’s faces several risks.

Google plans to offer a smart checking account along with Citigroup and Stanford Federal Credit Union. Tentatively called Cache, it could launch in 2020.

The proposed T-Mobile-Sprint merger agreement expired on November 1. Either company has the right to walk away from the transaction until a new date is set.

Since my last article about Nvidia (NVDA), the stock has risen from $196.86 to $208.57. I expect a further rise after today's earnings results.

TJX Companies (TJX) is scheduled to announce its fiscal 2020 third-quarter earnings results on November 19. Its third quarter ended on November 2.