Dominion Energy (D) is currently looking expensive compared to its peers and to its historical average. Its current EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is 15.0x, while its five-year historical average is 14.0x. The broader utilities’ average valuation multiple is 11.0x.
In comparison, Duke Energy (DUK) is currently trading at an EV-to-EBITDA multiple of 12.0x, while NextEra Energy (NEE) has a multiple of 13.0x. Dominion thus appears to be trading at a significant premium to its peers.
Dominion Energy is currently trading at a PE (price-to-earnings) multiple of 22.0x, which is higher than the industry average of 20.0x. Duke Energy’s PE ratio is 21.0x, while NextEra Energy’s ratio is 20.0x.
US utilities (XLU) have been trading on the expensive side for the last several months. Their five-year historical EV-to-EBITDA average is 8.0x–9.0x, while the current average is 11.0x. Utility stocks appear to be trading at a substantial premium, given their PE multiples. Their current average PE multiple is 20.0x, while they historically trade at 14.0x–15.0x.
Utilities have been trading at a premium valuation for a long time. Investors could be overlooking utility stocks’ record-high valuations and concentrating on their superior yields. With their premium valuations, utility stocks could witness a correction in the near future.
The top utility by market capitalization, NextEra Energy (NEE), has seen one of the steepest rallies in the S&P 500 Utilities Index. You can read a detailed analysis of this utility in Should Utility Investors Consider NextEra Energy?