US utilities have corrected notably over the past few weeks, and their recent valuations could start attracting new entrants. On December 29, 2017, broader utilities were trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation of ~10.5x. Their five-year historical valuation average is near 9x.
Among the top utilities, NextEra Energy (NEE), the utility with the highest weight in S&P 500 Utilities Index, is currently trading at an EV-to-EBITDA valuation of 13.3x, compared with its five-year historical average of 12x. Thus, NEE seems to be trading at a fair premium, when compared with industry average as well as with its historical average.
Duke Energy (DUK), the second-largest utility by market capitalization, is currently trading at a valuation multiple of 12x. Southern Company (SO) stock seems to be trading at a comparatively fair valuation relative to peers. It has a valuation multiple of 11x—close to its five-year historical valuation.
Utilities appear to be trading at a premium based on their PE (price-to-earnings) ratios as well. On average, they have a PE multiple of 16x, compared with their five-year average of around 14x–15x. NextEra Energy and Southern Company have their PE ratios near 18x while Duke Energy is trading at a PE multiple of ~21x.