On Oct 8, 2014, shares of Duke Energy Corporation (DUK) soared to a new 52-week high of $77.11. The stock pulled back a bit to end the trading session at $77.05 yesterday. This utility giant with a market cap of around $54.5 billion has seen its shares rise roughly 11.7% so far this year, outperforming the 6.5% gain of the S&P 500 over the same period.
What’s Driving Duke Energy Up?
Duke Energy is a premier utility service provider offering efficient power and energy services across various states in the U.S. and several other international locations. We appreciate the company's efforts to expand its scale of operations and utilize modern technologies.
Between 2014 and 2018, Duke Energy plans to invest a total of $15–$20 billion primarily for new generation, infrastructure projects and regulatory compliance initiatives. Apart from investing in traditional fuel-fired operations, Duke Energy is also extending its renewable operations. The company added 33 MW of solar assets to its portfolio in 2013. By 2018, it expects total investments of around $2 billion for its regulated and commercial renewables businesses. The company is expected to complete 200 MW of wind ventures in 2014. These initiatives will help provide reliable services to its customers.
Recently, Duke Energy signed five-year service agreements to manage two wind farms in Kewaunee County, WI. Owned by Wisconsin Public Services, one is the Lincoln Wind Energy facility with a generation capacity of 9.2 MW. The other is the Rosiere Project, owned by Madison Gas and Electric. It generates 11.2 MW.
The largest power provider in the U.S. – Duke Energy – reported higher second quarter 2014 earnings, aided by contributions from across the board. We believe the company’s regulated electricity and gas operations will enable it to generate a relatively steady and growing earnings stream in the future.
It also boosted its full year 2014 earnings guidance range to $4.50–$4.65 per share from its previous forecast of $4.45–$4.60 per share. It had earlier pegged its longer-term average annual growth at 4% to 6% through 2016.
Duke Energy also has a stable dividend payment history. In Jul 2014, the board of directors raised its quarterly cash dividend rate by around 2% sequentially to 79.5 cents per share. The company hiked its quarterly dividend rate every year since Jan 2007 after the spin-off of Spectra Energy. For 2014, Duke Energy plans to achieve its targeted long-term dividend payout ratio in the range of 65%–70% of its adjusted diluted earnings per share.
The present valuation makes the shares of Duke Energy look attractive. The trailing twelve months price/earnings (P/E) multiple of 16.3 is lower than the Zacks Industry average of 17.6, reflecting a discount of 7.4%. In addition, Return on Equity (ROE) is 8.2%, higher than the Zacks Industry average of 6.1%.
Duke Energy currently has a Zacks Rank #3 (Hold). However, some better-ranked stocks in the same industry include Korea Electric Power Corp. (KEP), NRG Yield, Inc. (NYLD) and American Electric Power Co., Inc. (AEP). Korea Electric Power and NRG Yield carry a Zacks Rank #1 (Strong Buy), while American Electric Power holds a Zacks Rank #2 (Buy).
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