CenterPoint Energy (CNP) is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 8.7x as of August 8, 2016. The EV-to-EBITDA multiple is a valuation metric that indicates whether a stock is overvalued or undervalued, regardless of capital structure.
CenterPoint Energy’s five-year historical EV-to-EBITDA average stands at 7.8x. This shows that it’s trading at a premium to its own five-year historical EV-to-EBITDA valuation. The company’s estimated EV-to-EBITDA for 2016 stands at 9.1x. This indicates expectations of lower EBITDA in 2016.
Where do peers stand?
Historically, US utilities have traded at a price-to-earnings multiple of 15x–17x. Currently, they have crossed the 20x mark and are trading at a huge premium to their historical averages. CenterPoint Energy is trading at a price-to-earnings multiple of 21x while CMS Energy (CMS) and Eversource Energy are trading at a multiple of 20x.
CenterPoint Energy underperformed utility peers in 2015 due to its large exposure to commodity prices. Its equity investment in Enable Midstream Partners (ENBL) consistently dragged its earnings for the last few quarters. However, CenterPoint has shown an impressive run since the start of the year and has risen nearly 28%. Utilities at large rose more than 15% in the same period.
Let’s have a look at the price targets for CenterPoint Energy in the next part.