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

The last time I wrote about Duke Energy (NYSE:DUK) I stated, "…I will stay away from the stock for now." After writing the article it proceeded to move lower to the tune of 1.96% versus the 5.09% gain the S&P 500 (NYSEARCA:SPY) posted. Duke Energy Corp is an energy company, operating through its direct and indirect wholly owned subsidiaries.

On February 18, 2014, the company reported fourth quarter earnings of $0.95 per share, which missed the consensus of analysts' estimates by $0.05. In the past year the company's stock is up 2.92% excluding dividends (up 7.29% including dividends), and is losing to the S&P 500, which has gained 21.16% 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 portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 21.28, 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 15.06 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (5.08), 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 4.19%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

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

07Nov13

72.92

26.04

16.01

4.56

68

4.44

5.86

23Feb14

71.49

21.28

15.06

4.75

71

5.08

4.19

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 4.36% with a payout ratio of 93% of trailing 12-month earnings while sporting return on assets, equity and investment values of 2.1%, 5.9% 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 4.36% 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 2.7%. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

15Aug13

4.52

91.8

2.1

5.8

3.0

06Oct13

4.70

111.0

1.8

4.9

3.0

07Nov13

4.28

111.0

1.8

4.9

3.0

23Feb14

4.36

93.0

2.1

5.9

3.0

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock is in overbought territory with a value of 70.30. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($71.49), I'm looking at $71.06 to act as resistance and $72.28 to act as support for a risk/reward ratio which plays out to be -0.6% to 1.11%.

Recent News

  1. On 18Feb14 the company reported earnings which missed on revenue and earnings. Earnings were $0.95 per share on revenue of $6.15 billion missing estimates by $0.05 and $170 million, respectively.
  2. The company stopped a leak of coal ash into the Dan River. Tons of coal ash was expelled from a leaky storm water pipe, which was plugged with concrete later on.
  3. The company put its Midwest merchant plants on the sell block. The properties are expected to fetch between $1.5 and $2.5 billion.

Conclusion

Duke is appealing to investors who are searching for regular cash payments in the form of dividends. Fundamentally the company is fairly priced based on 2015 earnings but expensively valued on future growth potential. Financially the dividend is a high yielder and other financial metrics have improved (ROE, ROA). On a technical basis I believe the bullish momentum is getting long in the tooth and we may be due for a price drop. Due to the tiring bullish technicals, fair valuation on earnings, and expensive valuation on growth I'm not going to be buying a position at this price.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long DUK, SPY. 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.

Source: Don't Get Electrocuted With High Yielding Duke Energy