Is This Utility Giant Still A Buy?

| About: Duke Energy (DUK)
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In this article, I will be discussing the analyst day highlights of Duke Energy (NYSE:DUK) and the other important recent developments related to DUK. Also, key performance catalysts and analysts expectations will also be discussed in the article below. Moreover, I reiterate 'buy' rating on the stock, with a target price of $71 (calculation shown below).

On Feb 28, 2013, DUK hosted the investors meeting in which the company provided 2013 EPS guidance and long-term growth targets. DUK is expecting earnings per share of $4.20 to $4.45 per share for 2013 and reaffirmed its long-term EPS growth target of 4% to 6%. Rate-base growth of 4% on average, through 2015, is expected to fuel the long-term earnings growth target for the company. The following graph shows the earnings base growth from 2012 till 2015.

Source: Investors Presentation (pdf)

Capital spending estimates for the next three years, 2013 till 2015, are expected to be $17.1 - $18.7 billion according to DUK. Also, DUK is projecting dividend payout ratio of 65% to 70% in the long run and dividends are expected to grow 2% to 3% per annum. Currently, DUK offers an attractive dividend yield of 4.4%.

Key Performance Catalysts and Outlook
There are several pending rate cases and regulatory issues that are expected to be resolved in the current year, 2013. Positive outcomes of these rate cases will have favorable impact on DUK's top and bottom lines. Following are the pending rate cases, which are expected to be resolved in the near future:

  • Progress North Carolina's rate case increase request of $183 million, on which decision is expected by the end of Q2 2013.
  • Duke North Carolina's rate case increase request of $446 million, decision is expected by Sept 2013.
  • A rate case requesting an increase of $132 million in Ohio, decision on this case is expected next month, and
  • Ohio cost recovery capacity rate case of $728 million, on which decision is expected by the end of first half of 2013.

In contrast to DUK's own long-term growth target of 4% to 6%, analysts are anticipating earnings growth rate of 5.5% on average from 2013 through 2016. Following are the analysts' EPS forecast for DUK.

EPS est.










Recent News
Duke Energy Carolina filed a request on March 6, 2013, with North Carolina Utilities Commission for adjustment of 'fuel and energy efficiency' charges. If the request is approved by the commission, this would increase nonresidential bill by 0.0387 cent per kWh and bill for residential customers would increase by 0.285 cent per kWh. Also, recently DUK signed an agreement to buy Atlantic Power interests in 500-kV transmission project in central California.

I reiterate 'buy' rating on the stock. I have calculated a price target of $71 for DUK, using the utility sector forward P/E of 15.5x and DUK's forecasted EPS of $4.65 for 2014. Furthermore, DUK also offers a solid dividend yield of 4.4%.

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.