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Analyzing Top Utilities’ Current Valuation

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Nov. 20 2020, Updated 5:25 p.m. ET

Valuation

US utility stocks have turned significantly cheaper compared to their valuation in November 2017. Currently, utilities are trading at a PE (price-to-earnings) multiple of 13x—compared to their historical average valuation of ~14x–15x. Considering their PE multiple, utilities seem to be trading at a discounted valuation.

NextEra Energy (NEE), the largest constituent of the S&P 500 Utilities Index, stock is trading at a PE multiple of ~17x, while PPL (PPL) is trading at a PE multiple of 14x. Duke Energy (DUK), the second-largest utility by market capitalization, stock is trading at 20x.

US utility stocks seem to be trading at a fair premium compared to their EV-to-EBITDA valuation. US utility stocks are trading at an EV-to-EBITDA valuation multiple of almost 11x, while their historical average multiple is ~9x–10x.

Duke Energy’s EV-to-EBITDA valuation multiple is close to 12x, while NextEra Energy’s EV-to-EBITDA multiple is at 13x.

NextEra Energy, the largest utility by market capitalization, increased its quarterly dividend recently. NextEra Energy’s dividend per share growth has been way higher than the industry average. To learn more, read NextEra Energy’s Dividend Outlook and Growth Prospects.

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