AES (AES) stock looks to be trading at a discounted valuation compared to its peers (XLU). However, it seems to be trading at a fair premium to its historical average. On November 7, 2017, it was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 8.0x. Its five-year historical EV-to-EBITDA multiple is near 7.5x. Currently, broader utilities’ average is near 11x.
The competitive utility stocks’ fairly discounted valuation compared to their peers is largely due to the volatile stock movements—driven by their less stable earnings.
Industry giant Duke Energy (DUK) is trading at a valuation multiple of 12.0x, while NextEra Energy (NEE) is trading at a valuation beyond 13.0x. Dominion Resources’ valuation ratio is just above 15x. Southern Company’s (SO) ratio is near 11.5x.
The EV-to-EBITDA ratio gives a comparative idea of a company’s valuation, regardless of its capital structure.
So far, AES stock has largely trended downward this year. Its lower-than-expected earnings in the last few quarters influenced its stock performance this year. Even though AES has underperformed its peers in terms of market performance, its dividend profile seems attractive and beat many industry giants.
In the next part, we’ll discuss AES’s dividends.