Available Growth Opportunities, Cost Savings Key Factors To Buy Duke Energy

| About: Duke Energy (DUK)
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Duke Energy (NYSE:DUK) is among the leading U.S. utility companies. Recently, DUK announced an exit from Midwest Generation operations as market conditions for competitive business operations remain difficult. The transaction will allow DUK to focus more on its regulated operations and growth opportunities available in its International segment. Also, the stock offers a healthy dividend yield of 4.4%. Therefore, I believe the stock remains a good investment option for dividend-seeking investors.

Financial Performance
DUK reported solid financial results for 4Q2013. The company reported earnings of $1.0 per share for 4Q2013, beating consensus estimates of $0.95 per share, up from $0.70 per share as compared to the corresponding period last year. Earnings for the quarter were positively affected by cost control measures, higher rates and favorable weather conditions. Revenues for the quarter increased and came out to be $6.15 billion, up 7% on a year-on-year basis.

Cost control measures undertaken by the company to achieve growth mainly include savings as a result of a merger with Progress Energy, which took place more than a year ago. By the end of 2013, the company achieved total fuel and dispatch savings of $190 million. DUK expects to reduce its non-fuel operations and maintenance costs by 9% in 2014.

The company expects its earnings growth to be 4%-6% through 2016. The company targets earnings growth to be achieved through cost control measures and load growth of 0.5%-1%. Also, the company expects that it will not issue equity to finance $21 billion (midpoint) of its planned capital expenditure. The company also disclosed its earnings guidance of $4.45-$4.60 per share for 2014. The earnings guidance includes contributions from the Midwest Generation business, which the company recently decided to sell.

The ongoing year, 2014, is likely to be a good year for the company, as the financial performance is likely to benefit from better retail sales assumed due to normal weather conditions, an improvement in capacity prices for unregulated operations and the impact of recent rate case increases. Also, the performance of the company is expected to be positively affected by rate base growth as a result of annual capital expenditures of approximately $5.5 billion.

International Operations and Exit from Midwest Generation
DUK's international business segment also presents attractive growth opportunities. The segment was able to enjoy earnings increase of more than 20% year-on-year to $108 million. DUK has significant exposure to fast growing Latin American markets; electricity consumption growth in Latin American markets is approximately four times that of U.S. markets. In the future, the company is likely to benefit from higher sales volume and pricing for its international business segment.

As the conditions for competitive power markets remain difficult due to lower capacity prices, utilities companies are considering options to scale down their competitive business operations. As I mentioned earlier, DUK is expected to scale down its competitive operations; earlier this week the company announced to divest its Midwest generational assets. DUK's Midwest operations resulted in a loss of $29 million in 2013, as compared to a profit $16 million in 2012. The announcement to sell Midwest assets from DUK came after the Public Commission's decision to reject the company's rate capacity rate recovery of $729 million. The Midwest assets have a generational capacity of 6,600MW and a book value of $3.5 billion. The sale transaction is expected to complete in the next 1-1.5 years, and the company is likely to register an impairment charge of $1-$2 billion in 1Q2014.

The decision to sell Midwest assets will help the company focus further on its regulated operations and growth opportunities available in international (Latin America) markets. Also, as regulated exposure for the company will increase, it will provide more earnings and cash flow stability to the company, which will portend well for the stock valuation and stock price.

I believe DUK remains an attractive investment option for dividend-seeking investors, as the stock offers a healthy dividend yield of 4.4%. Dividends presented by DUK are sustainable as they are backed by an operating cash flow yield of 12%. Also, the announcement to sell Midwest assets will portend well for DUK as there would not be any earnings drag in the future, starting from 2015. Moreover, the exiting from Midwest Generation will provide more earnings stability and improve DUK's risk profile. Growth opportunities available in international operations and cost savings are other factors, which will provide growth and benefit the stock price. Due to the abovementioned factors, I reiterate my 'buy' rating 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.