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How Is AES Valued Compared to Peers?




On January 11, 2017, AES (AES) was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 8.4x. Currently, it’s trading at a premium compared to its five-year historical EV-to-EBITDA multiple near 7x. The industry average is a little above 10x.

AES seems to be trading at a relatively fair valuation compared to the industry average. However, it seems to be trading at a premium to its historical average.

aes valuation

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Where do peers stand?

AES’s peer NRG Energy (NRG) is trading at a valuation multiple of 9x, while Calpine (CPN), another independent power producer, is trading at a multiple of 8.5x. The largest utility by market capitalization, Duke Energy (DUK), is trading at a valuation multiple of 11x. AES and Duke are a few internationally diversified utilities in the US.

The EV-to-EBITDA ratio gives a comparative idea of the valuation of a company, regardless of its capital structure. EV is the combination of a company’s market capitalization and debt minus its cash holdings.

Utilities have largely traded near an average PE (price-to-earnings) multiple of 15x in the last several years. However, they’re currently trading at a PE multiple near 19x–20x.

Factors such as slower-than-expected interest rate hikes and better quarterly results this year could fuel a rally in utilities (XLU), ultimately making them more expensive. On the other hand, the overvalued utilities could see a major correction if these circumstances change.


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