How Duke Energy’s Valuation Compared to Its Peers



Duke Energy: Valuation

Currently, Duke Energy (DUK) is trading at an EV-to-EBITDA[1. 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 11.6x.

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

In comparison, Southern Company (SO) has a multiple of 11.2x, while NextEra Energy’s (NEE) multiple is slightly on the higher side at 11.4x.


Duke Energy’s forward EV-to-EBITDA multiple is around 10.1x. The fact that its forward multiple is lower than its current multiple indicates expectations of a higher EBITDA in 2016.

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.

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PE multiple

Historically, US utilities have generally traded around a PE (price-to-earnings) multiple of 15x–17x. After the super surge this year, utilities’ PE multiples have surpassed 20x. NextEra Energy and Duke Energy are trading at PE multiples of 22.1x and 18.5x, respectively.

US utilities may continue to rally little longer in the light of the Fed’s slower-than-expected interest rate hike. The correction is long overdue in the utility space, but factors that fueled the rally were sustained in the last couple of quarters. There is still uncertainty over rate hike this year, plus the utilities’ second quarter earnings are also largely in line with the estimates. This may keep the sector up at the peak for some time more.

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


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