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How Is American Electric Power Valued Compared to Peers?

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Sep. 20 2016, Updated 8:09 a.m. ET

Valuation

As of September 16, 2016, American Electric Power (AEP) was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation of 10x. Its five-year historical average EV-to-EBITDA ratio is 9x, and the industry average is near 11x.

This figure indicates that the AEP stock is still trading at a premium to its five-year historical average. The recent correction of 10% has more or less brought it to a relatively fair valuation compared to industry average.

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Peer comparison

Duke Energy’s (DUK) EV-to-EBITDA is 11x, while Exelon’s (EXC) and Southern Company’s (SO) at valuation multiples of 7x and 12x, respectively.

American Electric Power’s estimated forward EV-to-EBITDA stands at 9.1x. This multiple indicates expectations of higher EBITDA later in 2016.

US utilities (XLU) have traded at a five-year historical average price-to-earnings multiple of 15x–17x. But as of September 16, 2016, they were near 20x, trading at fair premiums to their historical averages. AEP is trading at a price-to-earnings multiple of 19x, whereas Duke Energy and Southern Company are both trading at price-to-earnings multiples of 17x.

American Electric Power is trading at a fair premium compared to its five-year average, and a correction could bring it to a comparatively cheaper valuation multiple. Although utilities could become cheaper in the next few trading sessions, investors may trade them cautiously going forward as they eye the increased possibility of a rate hike from the Fed.

Now let’s have a look at AEP’s operational and financial insights.

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