Duke Energy Earnings: Management Stresses Focus on Organic Growth Plan

We are maintaining our $105 per share Duke Energy DUK fair value estimate after the company reported second-quarter adjusted earnings per share of $0.91 compared with $1.09 in the same year-ago period.

Duke Energy is one of our top utilities picks, trading at a 15% discount to our fair value estimate as of Aug. 8. We don’t think the market appreciates Duke’s improved regulatory environment and fully regulated capital investment plan after completing the divestiture of its nonregulated operations. The stock’s 4.5% dividend yield and our 6% annual earnings growth outlook for the next five years offer investors what we consider an attractive total return.

Duke will have to make up a first-half unfavorable weather impact with cost savings to achieve management’s full-year earnings guidance range of $5.55 to $5.75 per share, which the company reaffirmed.

The company has a track record of overcoming usage demand headwinds through cost savings, including finding opportunities above the company’s previously announced $300 million in cost savings. The company has identified $0.20 per share of additional cost mitigation measures, which should make earnings guidance achievable, assuming normal weather.

The company continues make progress on completing its previously announced plan to sell the company’s commercial renewable energy portfolio to Brookfield Renewable Partners. The more than $1 billion in proceeds will be used to lower company leverage and fund the company’s capital investment program. We like Duke Energy’s pivot to a fully regulated utility, providing a more stable cash flow profile.

Management said its sole focus is organic growth opportunities, not acquisition opportunities. We think it’s in Duke’s best interest to focus on executing the company’s $65 billion capital investment plan in 2023-27. This supports our expectation that Duke can achieve management’s 5%-7% annual earnings growth target through 2027.