The last time I wrote about Duke Energy (NYSE:DUK) I stated, "…I will stay away from the stock for now until I see it come down to the $64 level." It never came down to $64; it actually shot up 9.94% since that time versus the 4.08% the S&P500 (NYSEARCA:SPY) posted. I was wrong, so I want to do the due diligence again to see what to do with the stock this time around. Duke Energy Corp is an energy company, operating through its direct and indirect wholly owned subsidiaries. On November 6, 2013, the company reported third-quarter earnings of $1.46 per share, which missed the consensus of analysts' estimates by $0.06. In the past year, the company's stock is up 12.28% excluding dividends (up 15.58% including dividends), and is losing to the S&P 500 , which has gained 23.53% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the utilities sector of my dividend growth portfolio.
The company currently trades at a trailing 12-month P/E ratio of 26.04, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 16.01 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (4.44), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 5.86%. Below is a comparison table of the fundamentals metrics for the company from the last time I wrote the article to now.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
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 4.28% 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. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.28% 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 9 years at a 5-year dividend growth rate of 3.3%. Below is a comparison table of the financials metrics for the company from the last time I wrote the article to now.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock in overbought territory with a value of 70.09. I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is about to cross below the red line with the divergence bars decreasing in height, indicating the stock has downward momentum. As for the stock price itself ($72.92), I'm looking at $74.51 to act as resistance and the 20-day moving average (currently $71.17) to act as support for a risk/reward ratio, which plays out to be -2.4% to 2.18%.
- On 06Nov13 the company reported third quarter earnings which missed analysts' estimates by $0.06. However, the company raised the lower end of its guidance for the year by $0.05.
- The company blamed the miss on unseasonably cool weather during the third quarter causing customers not to use their air conditioning units much.
- The company declared a quarterly dividend of $0.78 per share with an ex-date of 13Nov13 and pay date of 16Dec13 for a yield of 4.39%.
Duke is appealing to investors who are searching for regular cash payments in the form of dividends. The company is fairly 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 dividend payout ratio is too high, the stock has bearish technical signals written all over it, and is extremely expensive on growth prospects. It is for these reasons I will stay away from the stock for now.
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.