At $63.3 billion, NextEra Energy (NEE) is the largest utility in the US by market capitalization. It had an incredible run on bourses in the past year. NextEra Energy stock outperformed peers by a huge margin and rose more than 16% in the past year. In comparison, the Utilities Select Sector SPDR ETF (XLU) rose 9% and the SPDR S&P 500 ETF (SPY) (SPX-INDEX) rose 12% during the same period. Notably, the utility sector forms 3.2% of SPY.
Due to NextEra Energy’s strong quarterly earnings growth, the stock continued to trade at elevated levels. Currently, NextEra Energy stock appears to be trading at a premium compared to its historical average and the industry’s average multiple.
Currently, NextEra Energy is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 12.0x. The industry’s average valuation stands near 10.0x, while NextEra Energy’s five-year average EV-to-EBITDA is 11.0x.
The EV-to-EBITDA ratio indicates whether a stock is undervalued or overvalued, regardless of its capital structure. EV refers to the combination of a company’s debt and market capitalization minus its cash holdings.