The utilities sector constitutes nearly 3.2% of SPY. Duke Energy constitutes more than 8.2% of XLU. The graph below compares the performance of Duke Energy, XLU, and SPY over one year.
On April 13, 2017, Duke Energy (DUK) was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple near 10.0x. The industry average valuation is near 10.0x. Duke’s five-year average EV-to-EBITDA multiple is 11.0x.
Duke Energy seems fairly valued compared to peers such as Southern Company (SO) and NextEra Energy (NEE). Both these companies are trading at valuation multiples above 12.0x. Dominion Resources (D) is trading at a valuation multiple of 15.0x.
An EV-to-EBITDA ratio shows whether a stock is undervalued or overvalued, regardless of its capital structure. EV represents the combination of a company’s debt and market capitalization, minus its cash holdings.
Duke Energy appears to be trading at a premium, given its PE (price-to-earnings) multiple of 21.0x. Southern Company has a PE multiple of 19x. Historically, utilities have traded at an average PE multiple of 15.0x–16.0x. NextEra Energy and Dominion Resources have current PE multiples above 21.0x.