Analyzing Exelon’s Valuation after Its Recent Correction



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.


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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.


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