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How High Could US Utility Stocks Go?

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Valuation

US utility stocks used to trade at an average EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple of 9.0x. They’re currently trading at an average of 11.0x. Given their PE (price-to-earnings) multiples, US utility stocks appear significantly overvalued. Their five-year historical average PE multiple is ~15.0x, while they’re currently trading at ~19.0x.

Utilities’ current valuations indeed hint at a possible correction. But any recent notable correction in utilities was followed by a strong buying action, bringing the valuations high again.

XLU stk

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Historical and industry averages

Large-cap utility stocks and industry leaders NextEra Energy (NEE), Duke Energy (DUK), and Dominion Energy (D) are currently trading at fair premiums compared to their historical averages and the industry average. Southern Company (SO) stock is trading comparatively at a fair valuation.

Utilities’ premium yields might continue to attract investors. Indeed, their superior dividend yield is higher than the ten-year Treasury yields and the broader markets. You can read more about utilities’ dividend yields in Can Utilities Keep Offering a Premium Yield?

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