Duke Energy Stock’s Current Valuation



Duke Energy: Market performance

US utility stocks have been rallying since the beginning of 2017. However, their weakness was revealed in the wake of the Federal Reserve’s July meeting. Although the possibility of the Fed raising interest rates in its upcoming meeting are quite low, the comments about future hikes may set the tone for utility stocks going forward.

Duke Energy, the second-largest utility by market capitalization, has surged more than 8%, and the Utilities Select Sector SPDR ETF (XLU) has risen nearly the same year-to-date. In the same period, the SPDR S&P 500 ETF (SPX-INDEX) (SPY) rose roughly 10%.

DUK stk

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On July 24, 2017, Duke Energy stock was trading at an EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] valuation multiple of 12x compared with the industry average multiple of 10x.

DUK appears to be trading at a premium considering its historical valuation multiple as well. Its five-year historical average is near 11x.

Duke Energy stock seems to be trading cheaper than its peers. NextEra Energy’s EV-to-EBITDA multiple is near 13x, and Dominion Energy’s (D) EV-to-EBITDA multiple is 15x. Georgia-based Southern Company (SO) stock has a valuation multiple near 12x.

Duke Energy is trading at a price-to-earnings multiple of 21x. The PE multiples for Southern Company and NextEra Energy are near 19x.

Total returns

Duke Energy’s returns, including dividends, came in at 3% in the last one-year period. Southern Company (SO) returned -7%, and NextEra Energy (NEE) returned 15% in the same period.

The Utilities Select Sector SPDR ETF (XLU) has returned 3% in the last one-year period.

Utilities generally pay healthy dividends, and the total return is a more precise way of assessing the performance of utility stocks.

Let’s move ahead and see where Duke Energy stock could go from here.


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