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Summary Company has accelerated efforts to get a large regulated asset base in order to secure long-term growth. DUK is investing heavily in its solar and gas-run operations. Company’s future cash flows will improve, which will back its dividend growth. Duke Energy (NYSE: DUK ) is a leading electric power company in the U.S. The company’s financial performance remains satisfactory, and it has been making aggressive efforts to further improve its performance. DUK’s constant efforts to better its financial numbers by making growth investments in renewable energy generation projects have placed it on a growth track. Given the correct growth efforts backed by its healthy capital investments, I expect DUK’s revenues, cash flows and earnings base will get better over time. Moreover, as the company’s future performance will improve, it will continue to share its success with shareholders in the form of cash returns, which will positively affect its stock price; the stock offers a dividend yield of 4.6%. DUK’s Efforts to strengthen its Power Generation Fleet In the recent past, the U.S. government has increased its efforts to lower carbon dioxide emission rate from energy generation fleets of utility companies by imposing heavy taxes and fines. In order to save themselves from taxes and the fine burden, utility companies have increased their focus on the expansion of renewable energy generation resources, such as solar, wind, geothermal, liquid biofuels and hydropower. Owing to the increase in scale of capital investments made by utility companies in renewable energy generation projects, the EIA projects that the U.S. renewable energy supply will steadily grow in the coming years, as shown in the chart below. (click to enlarge) Source: eia.gov As far as DUK is concerned, in the light of strict environmental regulations, the company like all other utility companies has started investing in the expansion of its renewable energy generation portfolio; year-to-date, DUK’s renewable business has attained a capacity of around 2000MW and it is making continuous strides to increase it further. In fact, the company is seeking all possible growth opportunities to increase its renewable energy generation capacity. DUK has recently filed two RFPs with Carolina state regulators; one of the RFP is to seek permission for running 53MW of utility solar capacity in the region, in order to ensure proper supply of energy to customers of the region, least by the end of 2016. And in a separate RFP, the company has mentioned that it is looking for a solar capacity of 5MW for the Shared Solar Program. DUK believes that the Shared Solar Program will be beneficial for those customers who can’t install solar panels in their homes, but still want to enjoy benefits of renewable energy resources. The deadline for approval of both RFPs is mid-October 2015; I believe that with the approval of these RFPs, the company’s process of adapting solar energy will speed up, and will help it meet the growing demand for energy in Florida. Moreover, the Indiana Utility Regulatory Commission has approved DUK’s 20-year purchase agreement to buy up to 20MW of energy from two solar developers in Indiana. Given the fact that solar projects are part of the company’s regulated asset base, I believe that by investing in its solar asset base, DUK will be able to file regular rate increase cases with regulators, which will ultimately better its future revenues, cash flows and earnings base. And as far as its gas-based energy generation operations are concerned, being an important part of its regulated asset base, the company has been making capital investments in its gas-based operations. DUK had previously filed an application to acquire 599MW of combined cycle-gas plant from Calpine, in Florida, which was recently approved by the FERC. Also, the company has announced the acquisition of a 7.5% stake in Sabal Trail gas pipeline for $225 million; with the commencement of its operation by the end of 2017, the Sabal Trail pipeline will serve DUK’s 1640MW Citrus County combined-cycle gas plant, which will begin its operations in 2018. Moreover, the company had announced $1.1 billion Western Carolina Modernization project in 2Q’15, under which coal plants in Asheville will be soon retire and will be replaced with a new 650MW combined gas plant. Moreover, the project will positively affect the company’s performance, as the electricity generated from the combined gas plant will be 35% less expensive than traditional coal plants. I believe that all of the abovementioned investments by DUK for the expansion of gas operations will serve as an important source of generating strong and stable revenues and cash flows in the years ahead. Furthermore, the company has given an update on its plan to excavate coal ash basins in North Carolina in the 2Q’15 earnings conference call; according to the announcement, 12 additional coal ash basins will be removed in North Carolina, which brings the total number of ash basins to be removed to 24. DUK’s management has estimated that additional cost to close these basins will remain in a range of $700 million to $1 billion; however, the timing for incurring this cost has not been announced yet, which perhaps the company’s management will announce in 3Q’15. I recommend investors to wait for the upcoming call to get a clear picture on this issue. Investors Remain rewarded at DUK The company has a promising history of making regular cash returns to its shareholders. As a matter of fact, DUK’s wider regulated asset base helps the company generate stable cash flows. The company recently raised its quarterly dividend by 3.8% to $3.30 share and the stock currently offers a dividend yield of 4.60% , well above the industry average of 4%. I believe that the company will continue to increase its dividends at a healthy pace, which will portend well for the stock price. Given the strength of DUK’s strategic growth investments, analysts are also expecting consistent growth in the company’s book value per share and cash flow per share, in 2016 and 2017, as shown in the chart below. (click to enlarge) Source: 4-Traders.com Price Target I have calculated a price target of $76 for DUK, using dividend discounting method. In my price target calculation, I have used cost of equity of 7.3% and nominal growth rate of 4%. Based on the target price, the stock offers a potential price appreciation of 8%.   2015 2016 2017 Terminal Value DPS (In-$) 2.91 3.01 3.52 84.2 Present Value Of DPS (In-$) 2.7 2.6 2.85 68 Source: Equity Watch Calculations & Estimates Total present value of DPS = Price Target = $2.7 + $2.6 + $2.85 + 68 = $76/share Risks The company continues to face the risk of changes in regulatory restrictions. Also, the challenging Brazilian business environment remains an overhang on DUK’s earnings growth potentials due to the company’s international business operations. In addition, any laxness exhibited by the company’s management during the execution of its strategic growth plan will result in failure to grow sales as expected. Furthermore, unforeseen negative economic changes, foreign currency headwinds and growing carbon dioxide emission-related charges are key risks that might hamper DUK’s future stock price performance. Conclusion I reaffirm my bullish stance on DUK; the company has accelerated its efforts to get a large regulated asset base in order to secure its long-term growth. In this regard, DUK is investing heavily in its solar and gas-run operations, which portrays a positive picture of the company’s future sales, cash flows and earnings growth. Given the strong growth potentials, I believe the company’s future cash flows will improve, which will back its dividend growth. Also, analysts have projected a healthy next five-years earnings growth rate of 4.67% for DUK, as shown in the chart below. (click to enlarge) Source: Nasdaq.com 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.