Duke Energy To Outshine Competitors Moving Forward

Nov. 8.13 | About: Duke Energy (DUK)

I reiterate my bullish stance on Duke Energy (NYSE:DUK), the leading U.S. utility company, given its stable earnings base, as a significant portion of the company's earnings are derived from regulated operations. Also, the company has delivered a healthy financial performance in the past and remains an attractive option for income-seeking investors. DUK offers a solid dividend yield of 4.3%. Moreover, the company has been undertaking investment spending, which is likely to provide future earnings growth.

DUK recently reported a satisfactory financial performance for 3Q2013. The company reported adjusted earnings per share of $1.46 for 3Q2013, down $0.01 as compared to the corresponding period last year, missing consensus estimates by 3%. Revenues for the recent third quarter totaled $6.7 billion, down approximately $10 million as compared to the corresponding period last year. The company's financial performance for the recent third quarter was adversely affected by higher depreciation and amortization expense and unfavorable weather conditions.

DUK's management anticipates experiencing an EPS growth rate of 4%-6% in the upcoming years. DUK narrowed its full year 2013 adjusted diluted EPS guidance range to $4.24-$4.45 per share from the prior guidance range of $4.20-$4.45. However, the company is yet to provide its 2014 earnings guidance range, and capital expenditure and cost savings estimates for 2015 and beyond. I believe DUK will provide an update on its future capital expenditure outlook, cost savings estimates and earnings guidance in February 2014, which will provide greater earnings visibility and portent well for the stock price.

Also, the company remains committed to incur investments to expand its generational capacity in South Carolina and Florida. DUK is also targeting to improve the efficiency of its generational fleet in Indiana in the future. Moreover, to expand its top and bottom line results, the company indicated it will focus on its international business operations and renewable energy sources. These investment initiatives by DUK will have a positive impact on the company's earnings. During the recent third quarter earnings call, the company's President and CEO, Lynn, said, ''Total, these investments will help drive growth in the back half of the decade while maintaining our low-risk value proposition and highly regulated business mix." As the company continues to invest more in its regulated operations, I believe it will provide greater earnings stability and visibility, and have a positive impact on the stock price.

The company, during its recent earnings call, stated that its priorities have shifted towards two key areas, including nuclear power fleet performance optimization and merger synergies. From June to August, the company experienced a 99.7% capacity factor for the power fleet and a capacity factor of 97% for its nuclear fleet in 3Q2013. DUK now expects its merger-related synergies to exceed its original expected range of 5%-7%, resulting in total cost savings of approximately $550 million. I believe merger synergies remain an important stock price catalyst for DUK in the upcoming years.

Conclusion
DUK remains an attractive investment option for income-seeking investors. The company offers a solid dividend yield of 4.3% backed by its healthy operating cash flow yield of more than 12%. Also, the company's investment spending plans to expand and optimize its operations will provide greater earnings stability and portent well for the stock price. Moreover, merger-related synergies will boost DUK's bottom line results. Analysts have projected a decent next five-year growth rate of 4% per annum. I believe DUK will outperform its peers in the future due to its strong business fundamentals and investment spending initiatives. Due to the aforementioned factors, I reiterate my bullish stance on the stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.