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How Is WEC Energy Valued Compared to Its Peers?

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Oct. 11 2020, Updated 12:10 p.m. ET

WEC Energy: Valuation

On January 23, 2017, WEC Energy Group (WEC) stock was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation of 11.5x. Its historical valuation multiple is above 12.0x, and the industry average is near 10.0x.

So WEC seems to be trading at a fair valuation compared to its historical valuation but at a premium to the sector as a whole.

An EV-to-EBITDA ratio indicates whether a stock is undervalued or overvalued, irrespective of its capital structure. EV represents the combination of a company’s debt and market capitalization, minus its cash holdings.

By comparison, the valuation multiple for PPL (PPL) is 10.7x, and Xcel Energy’s (XEL) is near 10.0x.

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PE multiple

WEC appears to be trading at a premium, considering its PE (price-to-earnings) multiple. Its current PE ratio is near 20.0x. The PE ratio for US utilities is 17.0x–18.0x.

WEC rose nearly 9.0% in the last year, while the Utilities Select Sector SPDR ETF (XLU) rose 11.0% in the same period. Utilities have been trading in a narrow range for the last few months.

Even though an interest rate hike is very possible this year, US utilities don’t seem that fragile. WEC stock movements may be hampered at times, but the company’s dividend growth seems pretty strong. Fourth-quarter earnings and interest rate developments are likely to pave the way for utility stocks going forward.

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