Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message| ()  

Duke Energy Corp (DUK) is an energy company, operating through its direct and indirect wholly owned subsidiaries. On August 7, 2013, the company reported second-quarter earnings of $0.87 per share, which missed the consensus of analysts' estimates by $0.07. There is nothing sexy about any utility company other than its high-dividend yield. The stock is down 3.75% since the last time I wrote about it and is losing to the S&P 500, which has gained 0.3% in the same timeframe, and with that in mind I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth picking up some more of stock right now for the utility sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 23.73, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 14.58 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $4.56 per share and I'd consider the stock inexpensive until about $68. The 1-year PEG ratio (4.21), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 5.63%. Below is a comparison table of the fundamentals metrics for the company from the last time I wrote the article to now.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

15Aug13

69.02

24.56

15.14

4.56

68

4.42

2.19

06Oct13

66.43

23.73

14.58

4.56

68

4.21

5.63

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 4.7% with a payout ratio of 111% of trailing 12-month earnings while sporting return on assets, equity and investment values of 1.8%, 4.9% and 3%, respectively, which are all respectable values, but nothing to go writing home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.7% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past nine years with an annual dividend growth rate of 3.3%. The company recently raised its dividend by 1.96%. Below is a comparison table of the financials metrics for the company from the last time I wrote the article to now.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

15Aug13

4.52

91.8

2.1

5.8

3

06Oct13

4.7

111

1.8

4.9

3

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle territory with a value of 46 but with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is below the red line with the divergence bars decreasing in height, indicating the stock has downward momentum. As for the stock price itself ($66.43), I'm looking at the 20-day simple moving average (currently $66.71) to act as resistance and $64.41 to act as support for a risk/reward ratio, which plays out to be -3.04% to 0.42%.

Recent News

  1. Deutsche Bank analyst Jonathan Arnold upgraded the company on Oct. 1, 2013, but did so cautiously. Mr. Arnold cited that if 10-yr yields took another stab at 3% it would be a risk to the utilities. He states the possibility of a utility returning 7-8% looks good in risk-adjusted terms when compared with an expected market return of about 10%.
  2. Duke made a splash in the alternative energy segment on Sept. 26, 2013 by inking a deal with Danish wind turbine maker Vestas Wind Systems (OTCPK:VWDRY) where Vestas will supply 400 MW of power generating turbines for two wind farms Duke plans on building in Texas.
  3. The company is slated to report earnings the morning of Nov. 6, 2013.

Conclusion

Whenever there is talk of interest rates rising there is bound to be a hurtin' put on the utilities. If interest rates do rise I would not doubt that the analysts will begin to downgrade the utility stocks. The company is inexpensively valued based on future earnings but extremely expensive on future growth. Financially, the dividend payout ratio is very high based on trailing 12-month earnings. The technical situation of how the stock is currently trading is telling me we might be seeing some downward pressure in the immediate future. The stock has bearish technical signals written all over it, deteriorating financial metrics (ROA and ROE) and is extremely expensive on growth prospects, and for these reasons I will stay away from the stock for now until I see it come down to the $64 level. I will analyze the stock again if it gets to that $64 level.

Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing.

Source: Duke Energy Raised Its Dividend 1.96% But I'm Not Buying It