PPL Corporation (PPL)

Conclusion

PPL Corporation is a US regulated utility that provides electricity and natural gas to about 3.6 million customers in Pennsylvania, Kentucky and Rhode Island. On 2026-11-09 the share price was 35.70 USD, giving a market capitalisation of 26.87 billion USD and an enterprise value of 47.36 billion USD.

The verdict is overvalued. The price-to-earnings ratio is 20.4x against a ten-year median of 18.0x, a premium of 13.6%, while enterprise value to EBITDA of 11.7x sits 4.0% below its median of 12.2x. The discounted cash flow gives 6.09 USD per share, and the fair value band runs from 17.51 to 26.27 USD with a midpoint of 21.89 USD, a margin of safety of -38.7%. The fair value from historical multiples is 37.69 USD. The reverse DCF implies growth of 31.0% a year, while revenue grew 10.6% a year over five years, so the price asks for far more growth than the company has delivered.

Two things hold the case up. Operating margin of 24.4% and net margin of 13.6% are both assessed as good, and the share count fell at a compound 0.6% a year over five years. Against that, net debt to EBITDA of 5.07 and interest coverage of 2.81 are weak, and free cash flow conversion over five years of -126.0% shows that reported earnings have not turned into cash. Return on invested capital of 5.7% sits below the weighted average cost of capital of 6.7%, so the business does not yet earn its cost of capital.

Financial health

Financial strength is red, because all four measures assessed are bad: the current ratio of 0.75, net debt to EBITDA of 5.07, interest coverage of 2.81 and the Altman Z-score of 0.96. The quick ratio is 0.47 and debt to equity is 1.37. The Altman model was designed for manufacturers, and PPL is a regulated utility, so its zone of distress should be read with that limit in mind. Insolvency risk: low, about 0.9% by the estimate of the Ohlson model. The estimate is based on balance sheet figures as of 2025-12-31. Leverage is the main concern: the company carries heavy debt relative to its earnings and only a modest margin over its interest costs, so a rise in borrowing costs or a fall in earnings would strain it quickly.

Earnings quality

Earnings quality is yellow, held back by weak cash conversion and supported by a shrinking share count and a sound accrual profile. Free cash flow conversion is 19.1% on a trailing basis but -126.0% over five years. The accrual ratio is -3.4%, and stock-based compensation is 0.5% of revenue. Free cash flow after stock-based compensation is 202 million USD. The share count fell at a compound 0.6% a year over five years, which points to buybacks. The Piotroski score is 5 of 9. The Beneish M-score is not available. The company beat earnings estimates in 4 of the last 8 quarters and missed in 4, with an average surprise of -2.7%. Current-year estimates were cut slightly over the last 90 days, with no upward revisions in the last 30 days.

Profitability

Profitability is green, supported by good operating and net margins, although return on capital remains below the cost of capital. The operating margin of 24.4% is close to its ten-year median of 25.9%, and the net margin of 13.6% is close to its median of 14.1%. The gross margin of 26.8% is well below its median of 47.2%, which reflects how the company reports its costs. Return on invested capital is 5.7% against a weighted average cost of capital of 6.7%, with a given difference of -1.0%, and the five-year median return on capital is 4.9%. Return on equity of 8.7% is flattered by leverage: the DuPont split shows a net margin of 13.1%, an asset turnover of 0.20 and an equity multiplier of 3.04, so the return comes mainly from borrowing rather than from operations.

Growth

Growth is yellow: revenue growth is good over five years, while earnings per share growth is weak over the same period. Revenue grew at a compound 4.6% a year over three years, 10.6% over five years and 1.7% over ten years. Earnings per share grew at a compound 15.6% over three years, but fell 3.7% a year over five years and rose 4.6% over ten years. Revenue grew in 6 of the last 10 years. The consensus expects next-year earnings growth of 8.7%, which is the figure the market is pricing, and it sits well below the 31.0% growth the reverse DCF implies.

Valuation

Valuation is red: the verdict is overvalued, and the margin of safety is -38.7%. The price-to-earnings ratio of 20.4x is above its ten-year median of 18.0x, a premium of 13.6%. Enterprise value to EBITDA of 11.7x is a 4.0% discount to its median of 12.2x, price to sales of 2.78 is a discount of 8.7% to its median of 3.05, and price to book of 1.77 is a discount of 3.6% to its median of 1.83. Price to free cash flow of 107.0 has too few historical points to give a median. The DCF gives 6.09 USD per share, using a discount rate of 8.9% and a 2.5% terminal growth rate, and the terminal value accounts for 58.1% of that figure. The fair value from historical multiples is 37.69 USD, which is well above the DCF. The fair value band runs from 17.51 to 26.27 USD with a midpoint of 21.89 USD. The fair value is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, and is not a price target. The dividend yield is 3.1%, and the forward yield is 3.2%. Dividends paid are 331.1% of free cash flow, so the payout is not covered by free cash flow.

Risks

The main risk is leverage. A net debt to EBITDA of 5.07 and interest coverage of 2.81 leave little room for higher interest costs or lower earnings, and a further fall in earnings would weaken coverage quickly. The current ratio of 0.75 shows short-term obligations above liquid assets, which the quick ratio of 0.47 confirms. Free cash flow conversion of -126.0% over five years means earnings have often not been matched by cash, and the dividend is not covered by free cash flow, so a cut to the payout cannot be ruled out if cash generation does not improve. Return on invested capital below the cost of capital means that growth may not add value unless returns improve. The Beneish M-score is not available, and there is no debt maturity schedule or revenue by segment in this analysis, so refinancing timing and the contribution of each region cannot be assessed.