The largest merchant power player in the country, NRG Energy (NRG), is currently trading at an EV-to-EBITDA valuation of 12x, while its five-year historical average is near 11x. Utilities on an average are trading at a multiple of 11x. Given the historical average and industry average, NRG Energy stock appears to be trading at a noteworthy premium.
Utility giants continue to trade at premium
Many utility giants are currently trading at a modest premium compared to their historical valuations. The largest component of the S&P 500 Utilities Index, NextEra Energy (NEE), is presently trading at an EV-to-EBITDA ratio of 13x. Its five-year historical average is near 11x.
Southern Company (SO) is currently trading at a valuation multiple of 11.2x. Its historical average is near 11x. Southern Company stock looks fairly valued compared to peers and even to its own historical average. Duke Energy’s (DUK) valuation ratio is near 12x against its historical average of 11x.
NRG Energy’s rally so far this year has been an outstanding one and has surpassed peers as well as broader markets by a massive margin. The Utilities Select Sector SPDR ETF (XLU) rose 14% so far this year while NRG Energy rose 100% so far this year. The SPDR S&P 500 (SPX-INDEX) (SPY) rose nearly 9% in this period.
NRG stock broke out on July 12 after the release of its transformation plan and rose 30% in a single day. You can read more in NRG Energy Stock Rose 30% Due to Its Transformation Plan.