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Inside Southern Company’s Current Valuations

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Southern Company’s valuation

Southern Company stock (SO) seems to be trading at a premium to the industry average and its historical average. Currently, it’s trading at an EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple above 12.0x. Southern Company’s five-year historical average multiple is near 11.0x, while the industry average is around 10.0x.

At the same time, Duke Energy’s (DUK) EV-to-EBITDA multiple is 12.0x, while Dominion Resources’ (D) multiple is 15.0x. Renewables titan NextEra Energy (NEE) has a multiple of 12.0x.

Val

Very few utilities stocks are currently trading at fair valuations. These premium valuations have resulted in concerns about a possible correction.

Due to these utilities’ strong earnings and dividend growth, as well as uncertainty in the broader market, we could see utilities continue to trade at premium valuations.

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PE multiples

US utilities appear to be trading at a premium, considering their price-to-earnings (or PE) multiples. Southern Company’s PE multiple is ~19x, and Dominion Energy’s PE multiple is near 23x. The industry average PE multiple is ~21x, and Duke Energy’s PE multiple is 23x.

On an average, US utilities (XLU) have traded at a PE multiple of around 15x–17x. Their current multiple of 21x appears to be very high compared to the historical average.

You can read about utility stocks’ investment propositions in The Best Utility Stock out There: NEE, DUK, or SO?

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