On Jun 1, 2017, we updated a research report on Charlotte, NC-based Duke Energy Corporation (DUK – Free Report) , a diversified energy company with a wide portfolio of domestic and international, natural gas and electric and regulated and unregulated businesses.
Duke Energy generates majority of electricity from coal, despite its commendable efforts to expand its renewable base. This is because solar, wind and hydroelectric energy accounts for a very low percentage of total electricity generation, which remains a concern, given increasingly stringent environmental regulations.
Again, adverse outcome from pending regulatory cases may negatively impact Duke Energy’s earnings. Notably, profitability depends largely upon rate relief at regular intervals for its different service areas. Consequently, Duke Energy continues to bear huge expenses related to the Dan River incident. On Sept 23, 2016, Duke Energy Carolinas entered into an agreement with the North Carolina Department of Environmental Quality (NCDEQ), under which the former agreed to pay $6 million. The agreement was aimed at resolving allegations underlying the asserted civil penalty related to the Dan River coal ash release and alleging unpermitted discharges at the facility.
Moreover, potential volatility in market prices of fuel, electricity and other renewable energy commodities might create operational risks for Duke Energy. In addition, unfavorable supply costs for providing full energy and capacity requirement services may have an undesirable impact on the company’s earnings. Currently, Duke Energy also faces challenges from severe weather conditions and natural calamities like hurricanes, which may result in breakdown and damage its infrastructure. We believe, these headwinds may interrupt the operations of the company and affect its performance disastrously, going forward.
On the brighter note, Duke Energy is a premier utility service provider offering efficient power and energy services across various states in the U.S. and several other international locations. We appreciate the company’s efforts on expanding its scale of operations and implementing modern technologies at its facilities. Also, Duke Energy’s heavy investment in infrastructure and expansion projects is impressive.
Furthermore, the company boasts a robust five-year capital plan and currently plans to invest about $37 billion in growth projects over the 2017-2021 time frame. In fact, this investment plan will drive earnings base growth in the company’s combined electric and gas businesses of approximately 6%, over the next five years. Duke Energy further projects investments to support its targeted earnings growth rate of 4%–6% through 2021.
Shares of Duke Energy have outperformed the Zacks categorized Utility- Electric Power industry in the last one year, probably buoyed by the strong investment strategy adopted by the company. Duke Energy’s shares gained 9.4%, compared with the industry’s gain of 2.5%. This is in line with the likes of its peers like DTE Energy Corp. (DTE – Free Report) and Ameren Corp. (AEE – Free Report) , who have also outperformed the industry.
Moving ahead, the new investment coupled with modernized approach and strategic acquisitions are expected to boost the performance of Duke Energy.
Zacks Rank and Stock to Consider
Duke Energy currently has a Zacks Rank #4 (Sell). A better-ranked stock in the same space is Northwestern Corporation (NWE – Free Report) , which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Northwestern Corporation’s EPS growth is estimated to be 3.30% in the next five years. The company surpassed its earnings estimates in the last four quarters by 9.98%.
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