The Valuation of Public Utility Equities

This paper reports on a cross-sectional valuation study of public utility equities during the year-end periods from 1961 through 1967. The ratios of market prices to earnings are related to such factors as anticipated earnings growth, dividend payout, and various proxy variables designed to measure the risk or quality of the earnings stream. The distinguishing feature of the study is that it uses the actual expectations of security analysts for variables that heretofore had to be estimated from historical data alone. The results of the regressions using expectations data are contrasted with results relying on historical data. Results of alternative risk proxies are compared, and the stability and predictive power of the model over time are examined.