EV/EBITDA Valuation Multiples of the S&P 500

Using the Economatica system we calculated the EV/EBITDA (TTM) multiple for key sectors in the S&P 500.

The multiple derived by the ratio between Enterprise Value (EV) and EBITDA is known as the Enterprise Multiple. This multiple is used by analysts to determine the value of a company, whether it’s undervalued or overvalued, or even a suitable M&A candidate. The multiple is particularly useful because, unlike P/E, for example, it is capital structure neutral allowing for fairer comparisons of companies with varying levels of debt. The multiple also removes any effects of noncash expenses on a company’s value, too. A low enterprise multiple might indicate a company is undervalued and also possibly an attractive takeover target. A high value might indicate the company is overvalued and also then less likely to be an M&A target. 

 As with many valuation metrics useful in determining a company’s value the Enterprise Multiple can vary by sector.  Expect higher enterprise multiples in high-growth industries, such as technology, and lower multiples in industries with slower growth, such as utilities.

For the purposes of this report we selected sectors in the S&P 500 comprised of 5 or more companies after eliminating companies with negative EBITDA (TTM) from the sample. The table below is ranked by EV-to-EBITDA (TTM) multiple from lowest to highest through 4/15/2020, or, as one might infer, from the least to most expensive sectors.

The 5 sectors with the lowest Enterprise Multiple (as of April 15, 2020) in this ranking are Scheduled Air Transportation (3.59), Petroleum and Coal Products Manufacturing (5.20), Residential Building Construction (6.73), Cable and Other Subscription Programming (8.40), and Traveler Accommodation (9.24).

We then identified the 5 most expensive sectors (as April 15, 2020) on the higher end of the Enterprise Multiple spectrum. These are the Soap, Cleaning Compound, and Toilet Preparation Manufacturing (25.69), Business Support Services (21.38), Other Investment Pools and Funds (20.78), Software Publishers (20.73), and Medical Equipment Manufacturing (20.51).

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