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Summary Company’s increased focus on regulated operations will drive future growth. Duke faces challenges in international segments, which could weigh on earnings in the near term. Growth will stay strong in long term, backed by company’s domestic regulated operations. Stock’s current valuation stays compelling as it is trading at a cheap forward P/E of 13.9x. Duke stays an impressive investment prospect for income-hunting investors, as it offers a solid dividend yield of 4.8%. Duke Energy (NYSE: DUK ) stays a core utility stock for income-hunting investors, as it offers a solid yield of 4.8% , above the industry average of 4%, and has a solid fundamental outlook. I think Duke is a high quality, large utility cap utility with a healthy and visible path towards the average EPS growth rate of 5% through 2019; the company’s low-risk domestic regulated business investments will drive its future growth. Moreover, the company’s strong rate base growth through 2019, along with its plan to hold operational and maintenance ((O&M)) expenses flat through 2016 will augur well for its earnings and dividend growth in the coming years. Also, the stock’s current valuation stays cheap; I think the stock should trade in line with its industry’s average P/E of 15.9x. Despite the fact that the company is facing challenges at its international segment, Duke Energy International, which may affect its performance in upcoming quarters, I think Duke is one of the best large cap defensive utility stocks. Growth Catalysts Duke has a solid fundamental outlook, and the company has been working to strengthen its future earnings growth. I think the company has taken the right strategic decisions in recent quarters, including repatriating cash from the international segment and the sale of Midwest assets, which will have a favorable impact on its performance going forward. Also, the company’s increasing focus on the core domestic regulated operations, which contributed almost 90% towards its total earnings, will improve its business risk profile. The company expects to enjoy EPS growth rate in a range of 4%-6% in future, which will be supported by its $42 billion capital investment plan through 2019. Going forward, attractive regulated investments including natural gas pipeline, NCEMPA asset acquisition and accelerated infrastructure investment, will drive its future growth. The company recently completed the $1.25 billion NCEMPA asset purchase, earlier than expected, which will have a positive impact of $0.04 per share on the 2015 EPS. Separately, if Duke moves ahead with its plan to file a new grid modernization plan in Indiana by the end of 2015, it will bode well for its stock price. Furthermore, the company is correctly taking initiatives to expand its renewable energy fleet, which will allow it to comply with the increasing environmental regulations to reduce carbon emissions and maintain reliable cost effective power generation assets. The company has been working on different solar and wind energy projects; Duke plans to add 500MW of solar capacity over the next ten years. Given the company’s consistent emission reduction efforts, the company has successfully lowered CO2 by 22% since 2005 through the transition to natural gas fleet, retirement of older coal units and investment in renewable energy sources. The company is moving ahead nicely to meet emission reduction by 32% by 2030. To further strengthen and support future growth, I think the company should focus more on renewable energy projects and make new investments towards natural gas reserves, which will offer rate base growth. Despite the strong performance of the company’s domestic regulated segment, its international segment continues to face challenges, which remains a concern for investors. Brazil’s economic and hydro challenges, lower oil prices and foreign exchange headwinds continue to weigh on the company’s consolidated EPS. The company needs to announce some additional opportunities around infrastructure development and acquisitions to offset the weakness of its international business operations. Also, the Brazilian government’s recent announcement to help companies like Duke, who have to dispatch thermal plants before hydro plants, could help the company’s international segment’s operations. However, I think that if the performance of the international segment does not improve in the upcoming quarters, the company needs to consider the option of selling its international operations, which will allow it to focus more on high quality domestic regulated operations, which will also augur well for its stock price. Summation Duke is positioned well to deliver healthy growth in future years. The company’s increased focus on regulated operations, along with robust capital investment profile through 2019, will drive its future growth. The company faces challenges in its international segments, which could weigh on its earnings in the near term, but in the long term, growth will stay strong, backed by its domestic regulated operations. The stock’s current valuation stays compelling as it is trading at a cheap forward P/E of 13.9x , versus the utility industry forward P/E of 15.9x ; in my opinion, Duke should at least be in line with its industry average, given its constructive regulatory environment, above average earnings growth and accelerating dividend growth. Duke stays an impressive investment prospect for income-hunting investors, as it offers a solid dividend yield of 4.8% at compelling valuation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) 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. Scalper1 News
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