Yahoo Finance Utilities Still Seem Strong, and Eversource Is No Exception
Will Eversource Energy Continue to Delight Investors in 2016?
Valuations
The steep climb of utilities in 1Q16 resulted in the overvaluation of most utility stocks. Many utilities are trading at premiums compared to their historical average EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples.
Eversource Energy is no exception to this. Currently, Eversource Energy (ES) is trading at an EV-to-EBITDA valuation of 11.4x. The EV-to-EBITDA ratio indicates whether a stock is undervalued or overvalued, irrespective of its capital structure. EV is the combination of a company’s debt and market capitalization minus its cash holdings.
Peer comparison
As for ES’s peers, Consolidated Edison (ED) is comparatively undervalued. It’s trading at an EV-to-EBITDA multiple of 10x. PPL Corporation (PPL) and Sempra Energy (SRE) are trading at EV-to-EBITDA multiples of 11.6x and 12.9x, respectively, as of April 13, 2016.
Compared to its historical average, Eversource Energy’s five-year historical EV-to-EBITDA ratio stands at 10x. This overvaluation is in-line with the utilities sector (RYU). Utilities rallied in 2016 based on better 4Q15 earnings and interest rate developments. A dull 2015 resulted in the undervaluation of utilities, which also made them attractive early in 2016.
Forward EV-to-EBITDA
Forward EV-to-EBITDA is a multiple that considers current enterprise value and EBITDA estimates for the next 12 months. The forward EV-to-EBITDA multiple of Eversource Energy is 10.4x. It reflects expectations of higher EBITDA from Eversource in 2016.
Almost all midsize utilities have lower forward EV-to-EBITDA multiples than their current ratios, which suggests higher EBITDA for 2016.
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