Xcel Energy (XEL) is drawing investor attention after recent share price moves, with the stock last closing at US$79.35. That puts fresh focus on how its long term return profile and current valuation compare.

Over the past year, Xcel Energy has combined a 6.25% year to date share price return with a 22.47% one year total shareholder return, while a softer 90 day share price return of 2.53% signals momentum has cooled slightly after a strong run.

If you are comparing Xcel Energy with other power and grid plays, it can be useful to see what else is moving in 35 power grid technology and infrastructure stocks

With Xcel Energy posting solid recent total returns and trading around US$79.35 against an analyst price target of US$91.39, the key question now is whether the stock is still undervalued or if the market is already pricing in future growth.

Preferred P/E of 23.7x: Is it justified?

On current numbers, Xcel Energy trades on a P/E of 23.7x, which sits above both peer averages and sector levels, so the stock carries a premium valuation at $79.35.

The P/E ratio compares the share price with earnings per share, and for a regulated utility like Xcel Energy it gives a quick sense of how much investors are paying for each dollar of earnings. A higher P/E can signal that the market is comfortable paying up for the company’s earnings profile, including its electric and natural gas operations across multiple states.

Against its own fair P/E estimate of 25.2x, Xcel Energy’s 23.7x multiple is framed as reasonable value, which suggests the valuation level could conceivably move closer to that fair ratio if current assumptions hold. However, compared with the US Electric Utilities industry average P/E of 21.8x and a peer average of 19.4x, the market is clearly assigning Xcel Energy a richer tag, implying that investors are accepting a higher earnings multiple than for many competitors.

Result: Price-to-earnings of 23.7x (ABOUT RIGHT)

However, Xcel Energy’s premium P/E and reliance on regulated returns mean that shifts in allowed rates, capital costs, or major project spending could quickly change the valuation story.

Another view on Xcel Energy using cash flows

While Xcel Energy’s 23.7x P/E sits below its 25.2x fair ratio, the SWS DCF model points the other way, with an estimated future cash flow value of $71.86 versus the current $79.35 share price. That implies the stock screens as overvalued on cash flows, so which signal should investors prioritise next?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Xcel Energy for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Looking at the mixed signals around Xcel Energy, it makes sense to move quickly and check the underlying data yourself so you are comfortable with your own stance. Our analysis highlights both risk factors and potential upsides that investors are watching, so review the 2 key rewards and 2 important warning signs

Looking for more investment ideas beyond Xcel Energy?

If you stop with Xcel Energy, you could miss other compelling setups, so take a few minutes to scan fresh ideas that match the way you like to invest.

• Target resilient payers and see which companies qualify as 9 dividend fortresses to potentially anchor the income side of your portfolio.
• Hunt for quality at a discount and review the companies highlighted in the 47 high quality undervalued stocks before prices move away from your comfort zone.
• Prioritise capital preservation and review the 68 resilient stocks with low risk scores so you are not ignoring stocks that may fit a more cautious approach.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.