On September 20, 2016, NextEra Energy (NEE) was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation of 11.2x. Its five-year historical average EV-to-EBITDA ratio is 11x, and the industry average is nearly 11x.
NextEra’s current multiple indicates that the stock is trading at a relatively fair valuation compared to its historical average as well as to the industry average.
Duke Energy’s (DUK) EV-to-EBITDA is 10.4x, while Exelon’s (EXC) and Southern Company’s (SO) at valuation multiples are 7.8x and 11.1x, respectively. NextEra Energy’s estimated forward EV-to-EBITDA stands at 10.8x, which 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 20, 2016, they were near 20x, trading at fair premiums to their historical averages. NEE is trading at a price-to-earnings multiple of 21.6x, whereas Duke Energy and Southern Company are both trading at price-to-earnings multiples of 17.5x.
Investors could find renewed interest in utilities after the recent selloff that stemmed from concerning valuations. Very few utilities are trading at fair valuations to their historical averages now, and NextEra is one of them. Interestingly, although utilities could become cheaper in the next few trading sessions, investors may still trade them cautiously going forward as they eye the increased possibility of a rate hike from the Fed.
Continue to the next part for a discussion of NextEra’s revenue growth.