uploads/2017/04/XLU-val-4-1.jpg

Top US Utilities: Reviewing Their Current Valuations

By

Updated

Valuation

Currently, Dominion Resources (D) is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 15.4x. Dominion Resources’s five-year historical EV-to-EBITDA average stands near 14x. US utilities’ (XLU) industry average is at 10.5x.

Dominion Resources appears to be trading at a premium compared to its historical average valuation and the industry average.

XLU val

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.

Article continues below advertisement

Peer valuation

Currently, Duke Energy (DUK) and Southern Company (SO) are trading at valuation multiples of 10.2x and 12.0x, respectively. In comparison, renewables giant NextEra Energy (NEE) is trading at a multiple of 12.0x.

Among the large-cap electric utilities, Duke Energy appears to be the only utility that’s trading at a relatively fair valuation.

PE multiple

US utilities (XLU) appear to be trading at premiums based on PE (price-to-earnings) multiples. Dominion Resource’s PE multiple is beyond 21x. Historically, utilities have traded at a PE multiple of around 15x–16x. Currently, they’re above 20x. Duke Energy and Southern Company are trading at PE multiples near 20x.

How did US utilities play out in 1Q17? Read These Utilities Made the Most of 1Q17—Did You? to learn more.

Advertisement

More From Market Realist