Currently, Dominion Resources (D) is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 15x. Dominion Resources’s five-year historical EV-to-EBITDA average stands at nearly 14x. US utilities’ (XLU) industry average is near 10.5x. On the other hand, NextEra Energy (NEE) is trading at an EV-to-EBITDA ratio beyond 12x. Its five-year historical average valuation multiple stands near 11x.
It should be noted that both of the utilities seem to be trading at a premium compared to their industry average and the historical average.
US utilities appear to be gradually returning to their fair valuation levels in 2017. They traded at a heavy premium in 2016. Duke Energy’s (DUK) EV-to-EBITDA is 10x, while Southern Company’s (SO) EV-to-EBITDA is near 12x.
An EV-to-EBITDA ratio gives a comparative idea of a company’s valuation, regardless of its capital structure. EV is the combination of a company’s market capitalization and debt minus its cash holdings.