Xcel Energy’s valuation
US utility stocks have been rallying for the past several months, and the rally has made them relatively expensive. But Xcel Energy (XEL) stock, in particular, looks to be trading at a fair premium right now to both its historical average and the industry average.
XEL is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 11.0x. Xcel Energy’s five-year EV-to-EBITDA average valuation multiple is ~10.5x, while the industry average is ~10.0x.
Remember, the EV-to-EBITDA ratio tells us if a stock is undervalued or overvalued, regardless of the company’s capital structure. EV represents the combination of a company’s debt and market capitalization, minus cash.
Duke Energy (DUK), the biggest regulated utility in the sector, has a ratio near 12.0x. By comparison, Southern Company (SO) is trading at a premium valuation of 12.2x, while PPL Corporation (PPL) is trading at an EV-to-EBITDA valuation multiple of 11.5x.
Xcel Energy has a PE (price-to-earnings) multiple of ~19x. PPL Corporation stock appears to be cheaper than the industry average of ~21x, with a PE multiple of 15x.
Utilities going forward
US utilities (XLU) have been trading at heavy premiums for a while now. But given their attractive yields and potential gains, there might not be any big corrections going forward. Utilities seem, in general, financially sound, with attractive earnings growth potential, and their expected dividend growth appears fairly achievable in the near future.
If you’re looking for attractive dividend profiles among US utility stocks, check out Market Realist’s series Comparing Dividend Profiles of the 2 Fastest Growing Utilities.
Continue to the next part for a discussion of where Xcel Energy stock could go in the near future.