Examining Xcel Energy’s Valuation After Stock Jumps 32% on Clean Power Momentum

If you follow utility stocks, you’ve probably noticed Xcel Energy popping up on more watchlists lately. Whether you’re already holding shares or thinking about jumping in, the recent moves in Xcel’s stock price have been hard to ignore. Over the last month, the stock has surged 12.0%, and it’s up a whopping 32.0% for the past year. Year-to-date performance sits at 22.3%, which is notable, especially for a company that traditionally flies a little under the radar. Some of this momentum seems tied to broad enthusiasm around renewable energy investments as U.S. infrastructure and clean energy policies continue to evolve, giving companies like Xcel new avenues for long-term growth.

But rapid climbs like these also invite questions. Is there still room for upside, or has the run already priced in most of the good news? To get a handle on whether Xcel Energy is undervalued, overvalued, or somewhere in between, I ran it through six of the most common valuation checks. The result: Xcel is undervalued in just 1 out of 6, earning a valuation score of 1. That answers some questions, but not all, because how you measure value can depend a lot on what you’re looking for.

Let’s break down these valuation methods and see what they reveal about Xcel Energy. And stick around, because beyond the numbers, there might be a more insightful way to look at the company’s value story.

Xcel Energy scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Xcel Energy Dividend Discount Model (DDM) Analysis

The Dividend Discount Model, or DDM, estimates a company's intrinsic value by projecting future dividend payments and discounting them back to today's dollars. It is best suited for dividend-paying companies with established payout records, like Xcel Energy, and places special emphasis on the sustainability and growth potential of those dividends over time.

For Xcel Energy, the DDM uses an annual dividend per share of $2.45, a return on equity of 10.6%, and a payout ratio of about 61%. The model assumes a long-term dividend growth rate capped at 3.08%, slightly below Xcel’s recent historical rate to remain conservative. These factors suggest a solid ability to maintain and gradually increase payouts, but not at an especially rapid pace.

Based on these dividend projections and the required rate of return, the model estimates an intrinsic share value of $66.23. Compared to Xcel Energy’s recent share price, this implies the stock is about 23.5% overvalued using the DDM approach. While investors may be excited by recent stock gains and future prospects, the math indicates the current price already includes a significant level of optimism.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Xcel Energy.

Our Dividend Discount Model (DDM) analysis suggests Xcel Energy may be overvalued by 23.5%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Xcel Energy Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is a widely used metric for valuing profitable companies like Xcel Energy, as it measures how much investors are willing to pay for each dollar of earnings. For businesses that reliably generate profits year after year, the PE ratio helps illustrate market expectations for future growth, stability, and risk.

Generally, a higher PE ratio can be justified if investors believe the company will deliver stronger earnings growth or carries less risk, while a lower ratio usually signals slower growth or higher uncertainty. To put Xcel Energy’s valuation in perspective, it is important to compare its PE ratio both to its industry and similar companies. Currently, Xcel Energy trades at 23.3x earnings, which is above the electric utilities industry average of 21.4x, but sits well below the peer group’s average PE of 33.3x.

Simply Wall St’s proprietary “Fair Ratio” comes into play here. The Fair Ratio, at 22.8x for Xcel Energy, reflects a more nuanced view by considering factors like expected earnings growth, profit margins, market cap, industry dynamics, and specific risks. Unlike just comparing to industry or peer averages, the Fair Ratio adjusts for the unique qualities of Xcel Energy and aims for a much more tailored benchmark.

Comparing the Fair Ratio of 22.8x to Xcel’s actual PE of 23.3x, the difference is minimal and well within the normal margin for market fluctuations. This suggests Xcel is priced about where it should be given its specific fundamentals and outlook.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Xcel Energy Narrative

Earlier, we mentioned that there is an even better way to make investment decisions, so let’s introduce you to Narratives, a feature designed to help you see beyond the headline numbers. A Narrative is simply your interpretation or story about a company’s future: you state what you believe will happen to its revenue, earnings, and margins, and the platform links these assumptions to a financial forecast and the fair value you reach.

Narratives help you turn your personal insights and research into concrete numbers that guide your buy or sell decisions by showing immediately how your view compares to the current share price. They are easy to use and fully accessible on the Simply Wall St Community page, trusted by millions, which means you do not need spreadsheets or technical expertise to get started.

Best of all, Narratives are always up to date. As new information, news, or earnings are released, your fair value and forecasts update automatically. For example, some Xcel Energy investors believe its clean energy expansion and strong regulatory support will justify a fair value of $84 per share, while others, focusing on capital risks and regulatory challenges, see fair value closer to $63. Narratives help you pin down your expectations, understand other viewpoints, and make more informed, adaptable investment choices as the story unfolds.

Do you think there's more to the story for Xcel Energy? Create your own Narrative to let the Community know!

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.

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