Utility giant Duke Energy Corp. (DUK) is slated to report third-quarter 2014 results on Nov 5, 2014 before the opening bell. Last quarter, the company posted a positive earnings surprise of 11.00%. Also, the company has a positive earnings surprises in three out of the trailing four quarters with an average beat of 4.87%. Let us see what is in store this quarter.
Why a Likely Positive Surprise?
Our proven model shows that Duke Energy is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.66%. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Duke Energy has a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Duke Energy’s Zacks Rank #3 and +0.66% ESP makes us confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
The largest power provider in the U.S. is focused on expanding its scale of operations farther. In September, Duke Energy and three other major U.S. energy companies announced a new natural-gas line that will run from West Virginia to the southeast corner of North Carolina. The proposed $4.5–$5 billion, 550-mile natural gas pipeline will be built by Duke Energy, Dominion Resources Inc. (D), Piedmont Natural Gas Co. (PNY) and AGL Resources Inc. (GAS) under a joint venture – Atlantic Coast Pipeline LLC. This U.S. utility giant is inclined on returning to its pipeline operations after it had spun off its natural-gas unit as Spectra Energy Corp. back in 2007. This would ensure a stable supply of natural gas.
Duke Energy is currently constructing innovative solar and wind energy generation projects across the U.S. The company recently stated that it will invest $0.5 billion in several solar power projects, amounting to a total capacity of 278 megawatt, in North Carolina. The company plans to invest around $2 billion through 2018 to boost its renewable portfolio. It also acquired a solar photovoltaic (PV) project from a developer of utility scale solar projects, HelioSage Energy.
Duke-American Transmission, a joint venture of Duke Energy Corp. and American Transmission Co., and three other companies – Dresser-Rand Group Inc., Magnum Energy and Pathfinder Renewable Wind Energy – have jointly proposed an $8 billion renewable energy project that would supply Los Angeles with more than twice the power generated by the Hoover Dam.
The project in Los Angeles will involve the construction of one of the country’s largest wind farms in Wyoming, one of the world's biggest energy storage facilities in Utah, and a 525-mile electric transmission line connecting the two sites.
A favorable financial position also supports Duke Energy’s practice of paying steady dividends. In Jul 2014, the board of directors raised its quarterly cash dividend rate by around 2% sequentially to 79.5 cents per share. On an annualized basis, Duke Energy’s dividend rate came in at $3.18 per share. For 2014, Duke Energy plans to achieve the long-term dividend payout ratio in the range of 65% – 70% of its adjusted diluted earnings per share.
On the whole, Duke Energy’s steady efforts to expand its renewable asset base will enable it to diversify its generation mix and scheduled completion of various growth projects will enable it to meet increasing customer demand, thereby improving future cash inflows.
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