Dominion Energy (D) is one of the top utility stocks. It has been trading at a fair premium for quite a while. On July 24, 2017, it was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation ratio of 15x, while utilities’ average valuation multiple is near 10x. Dominion’s five-year historical average EV-to-EBITDA ratio is near 14x. Currently, it appears to be trading at a premium compared to the industry average and its historical multiple.
Despite a recent correction in utility stocks, they still seem to be trading at a premium compared to their historical average. In comparison, NextEra Energy stock was trading at an EV-to-EBITDA valuation multiple near 13.0x, while Duke Energy’s (DUK) valuation multiple is at 12.0x. Southern Company’s (SO) valuation multiple is at 12x.
US utility stocks came down last month, largely due to concerns about their towering valuations and higher interest rates. Although the possibility of the Fed raising interest rates in its upcoming July meeting is very low, remarks about future rate hikes might set the tone for utility stocks going forward.
Dominion Energy has fallen more than 2% in the last 12 months, while the Utilities Select Sector SPDR (XLU) is trading at the same levels as last year. Southern Company corrected by more than 10%, while NextEra Energy (NEE) managed to gain 12% in the past year.
Dominion Energy’s returns, including its dividends, were ~2% in the past year. The recent stock correction pulled its total returns down. In comparison, NextEra Energy returned 12% and Southern Company returned -8%.
To learn how these top utility stocks have performed in the longer term, read NextEra’s Total Returns Surpass Returns of Other Utility Giants.