So far, Dominion Resources (D) stock rose nearly 3% this year, while the Utilities Select Sector SPDR ETF (XLU) rose 7% during the same period. The SPDR S&P 500 ETF (SPY) (SPX-INDEX) rose 5% during the same period. Dominion Resources accounts for more than 7.5% of XLU. Notably, the utility sector makes up nearly 3.2% of SPY.
The following chart compares the performances of Dominion, XLU, and SPY over the past year.
Dominion Resources appears to be trading at a premium compared to its historical average valuation and the industry average.
Currently, Dominion Resources is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 15.5x. Dominion Resources’s five-year historical EV-to-EBITDA average stands near 14x. US utilities’ (XLU) industry average is at 10.0x.
Duke Energy (DUK) and Southern Company (SO) are trading at valuation multiples of 10.0x and 12.2x, respectively. In comparison, renewables giant NextEra Energy (NEE) is trading at a multiple of 12.0x.
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.
Among the top US utilities, Duke Energy seems to be trading at the fairest valuation among its peers.
To learn more, read Duke Energy’s Valuation Compared to Its Peers.