Comparing Utility Giants: NextEra Energy and Dominion Energy

Utilities look strong

Recently, utility (XLU) stocks have been on a roll. Investors turned to safe havens due to geopolitical tensions. Utilities have continued to rally. The Fed is taking a break from raising interest rates. NextEra Energy (NEE), the biggest utility by market cap, has consistently beat broader markets and its peers for the last several years. Dominion Energy (D), the third-biggest utility, has underperformed during this period.

Comparing Utility Giants: NextEra Energy and Dominion Energy

NextEra Energy serves more than five million customers in Florida. Dominion Energy mainly operates in Virginia and South Carolina and serves ~7.5 million customers. Both of the utilities generate earnings from a combination of regulated and competitive operations.

Valuation

For the past 12 months, NextEra Energy stock rose 18%, while Dominion Energy rose 8%. Currently, NextEra Energy is trading at ~$190.0, which is close to its all-time high. NextEra Energy is trading at a forward PE ratio of 22x, according to the consensus estimates for 2019. The utility seems to be trading at a large premium compared to peers’ average around 17x–18x.

Dominion Energy stock is trading at a valuation of 18x, which is lower than its five-year average. Dominion Energy looks fairly valued compared to its peers. NextEra Energy stock likely justifies its premium valuation due to its relatively higher potential earnings growth.

Southern Company (SO) is trading at a valuation multiple of 16.7x, while Duke Energy (DUK) is trading at a valuation multiple of 18x.