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Duke Energy Earnings: Mild Winter Presents Headwind for Full-Year Results

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Duke Energy Corp
(DUK)

We are maintaining our $105 per share Duke Energy DUK fair value estimate after the company reported first-quarter adjusted earnings per share of $1.20 compared with $1.29 in the same year-ago period.

Similar to Duke’s peers, the switch from a colder-than-normal winter in 2022 to a substantially warmer-than-normal winter this year resulted in a $0.22 per share negative year-over-year impact. Duke has usage-based rates in many of its service territories that do not protect it from changes in underlying demand changes. Near-term changes in electricity demand driven by weather volatility have no impact on our fair value estimate. Customer growth across Duke’s service territory remained strong.

Duke will have to make up the weather impact with cost savings during the rest of the year to achieve management’s full-year EPS guidance range of $5.55 to $5.75. Duke has a track record of overcoming the impact of electricity demand headwinds through cost savings, most recently offsetting pandemic-related electricity demand weakness during 2020. Partially offsetting the weather headwind were higher revenue from rate cases and riders, and lower operating expenses.

The company continues to pursue the sale of its commercial renewable energy subsidiary, which contributes less than 5% of total earnings. The proposed divesture has dragged on longer than we had expected, signaling to us the challenging economic conditions for selling renewable energy assets. Duke took an additional $175 million charge in addition to the previous $1.3 billion charge on the fair value of its commercial renewable energy portfolio. Overall, we don’t expect the transaction to have a material fair value impact.

The firm’s $65 billion capital investment plan for 2023-27 remains unchanged and supports our expectations for Duke Energy to achieve its 5%-7% earnings guidance in 2023-27. Duke’s North Carolina subsidiaries have filed rate cases, with one subsidiary reaching a constructive settlement, in our opinion.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Andrew Bischof

Strategist
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Andrew Bischof, CFA, CPA, is an equity strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers regulated utilities, diversified utilities, and independent power producers.

Before joining Morningstar in 2011, Bischof was a senior treasury analyst for Mead Johnson Nutrition. Previously, he was a group audit officer for Bank of America in Chicago, and before that, an auditor for Ernst & Young.

Bischof holds a bachelor’s degree in business administration and accounting and a master’s degree in accounting from the University of Wisconsin. He also holds a master’s degree in business administration, with a concentration in finance, from Indiana University’s Kelley School of Business and the Chartered Financial Analyst® and Certified Public Accountant designations.

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