Duke Energy: Industry Selloff Provides Opportunity to Pick Up Duke at a Discount

After announcing plans earlier this week to divest its commercial renewable energy business, Duke will become a fully regulated utility with a clear pathway to achieving management’s 5% to 7% earnings growth target. Duke Energy is the third cheapest utility on our sector coverage list as of mid-June, trading at a 13% discount to our $105 per share fair value estimate. Last August, Duke traded at an 11% premium to our fair value estimate. Duke’s 4.4% yield is among the highest in the sector and a 70-basis-point premium to the sector median. Given Duke's higher payout ratio, we expect dividend growth to lag earnings growth.