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Duke Energy – FY 2014 Results And Future Guidance Takeaways

Summary Expected EPS growth in 2015 ($4.55-$4.75) from $4.55 in 2014. Expected EPS growth of 4-6% through 2017. Commitment to dividend and maintaining a strong balance sheet. Potential risks include exposure to Brazil, decreased residential energy usage, and volatile oil prices. Duke Energy’s Q4 Earnings Call On February 18, 2015, Duke Energy Corporation (NYSE: DUK ) reported their fourth quarter and full year 2014 earnings. Within the earnings call, the company identified four financial objectives for 2015 and beyond within their presentation: (1) Current Year earnings guidance, (2) Long-term earnings growth, (3) Dividend growth, (4) Balance sheet strength. In this article, I will review these four financial objectives and provide an outline and analysis on the company’s projections. Refer to the company’s earnings call transcript and power point for additional details. Expected EPS Growth in 2015 In 2014, the company achieved an adjusted diluted EPS of $4.55, which fell in the range of the original guidance ($4.45-$4.60) and the revised guidance ($4.50-$4.65). The guidance range for 2015 earnings guidance is $4.55-$4.75. Key assumptions for 2015 in obtaining this estimate are: Capital expenditures falling within the range of $7.4-$7.8 billion in 2015. This represents a moderate increase of 35% to 42% from the $5.5 billion in 2014. This increase is a positive sign for the company in the future as they make commitments to pursue alternative energy generation sources to decrease their financial dependency on crude oil prices. Retail load growth of 0.5-1.0% in 2015. This range has been reached each year since 2012 (0.6% in 2012, 2013, and 2014). This will be a key metric to monitor throughout the year as the company experienced a difficult year for residential sales in 2014. The company experienced a 0.1% decline in weather-normalized residential sales, but the decline was much worse in Q4 2014 specifically where they experienced a 2.2% decline. 700M average shares outstanding as of 12/31/2015. This shouldn’t be a difficult metric for the company to achieve as they had 707M outstanding as of 12/31/2014 with no planned equity issuances through 2017. $65 per barrel average Brent crude price for 2015. This is a hard assumption to question as oil has become a major battleground and everyone has a different opinion on the future price of oil. I expect that oil inventories will continue to rise and prices will continue to decrease in 2015. Based on the February 2015, EIA report, Brent crude oil prices are expected to be $57.56 in 2015. Exchange rate of approximately 2.85 BRL/US$ (2.35 in 2014). Again, like oil, this is a hard assumption to question, but the BRL/US$ exchange rate has seen a relatively steady increase since September 2014 and I expect this to continue as the Brazilian economy struggles and the US economy strengthens in 2015. Expected EPS Growth Past 2015 In addition to achieving 2015 adjusted diluted EPS guidance, the company is striving for per share growth of 4-6% through 2017. The key growth drivers in this per share growth are: Retail load growth of 1% going forward. Based on the analysis above, the company has been stagnant with a 0.6% retail load growth from 2012 to 2014. I think it is going to be very difficult for the company to achieve a 1% growth going forward. I think it is going to be difficult to achieve because of the lower energy usages in homes. I don’t see this trend reversing and allowing this 1% growth rate to be achieved. The company expects total wholesale net margin to increase due to the new 20-year contract with NCEMC at Duke Energy Progress (began in 2013) and 18-year contract with Central EMC at Duke Energy Carolinas growing to a load of 900MW in 2019 from 115MW in 2013. FY2015’s total wholesale net margin is expected to be approximately $1.1 billion with an anticipated 5% compound annual growth rate. Regulated earnings base growth is expected to follow the $2 billion growth trend in 2015 that was seen in 2014. Commitment to Dividend and Maintaining a Strong Balance Sheet In 2014, the company paid out a dividend of $3.18 per share with that amount expected to rise to $3.24 per share in 2015 (almost 2% increase year-over-year). With the company achieving a payout ratio close to 70% and management’s commitment to paying out a quarterly dividend to investors, I do not see the company’s current 4% dividend yield to be at risk. Management has paid 89 consecutive years of dividends with increases coming the past 7 years. This is largely possible due to the company’s strong balance sheet and no planned equity issuances through 2017. In addition, the company announced a strategically tax-efficient way to repatriate $2.7 billion back to the U.S., which will help fuel the dividend increases going forward. 3 Potential Risks The exposure to Brazil is a significant risk for the company’s future, which was seen in the 2014 financial results. In 2014, there was a decrease in sales volume as well as higher purchased power costs due to the interruptions in the hydrology production. Per the earnings call, they are assuming normal hydrology despite the rainy season starting slowly. Brazil is a major story to follow for Duke Energy in 2015 and beyond as the company is predicting EPS growth from this business segment despite recent downward trends in profits there as well as the Brazilian economy. I think the company will have difficulty increasing the retail load growth to 1% given the increased technologies and social initiatives to decrease electric use. Oil prices will continue to be a wild card going forward. Forecasting a price on such a volatile asset is a difficult task. If oil prices continue to fluctuate widely, it will significantly impact the company’s bottom line. Conclusion: Duke Energy Corporation faces some difficult obstacles including a slowing Brazilian economy, lower residential energy usage, and volatile oil prices; however, I believe that the company gave conservative and very obtainable estimates in each of the key assumptions used to allow them to meet their financial objectives for FY 2015 and beyond. While I don’t see Duke Energy being a rapid growth story going forward, I do believe they have the ability to present slow stock appreciation with the safety of a consistent dividend. Disclosure: The author is long DUK. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Are you Bullish or Bearish on ? Bullish Bearish Neutral Results for ( ) Thanks for sharing your thoughts. Submit & View Results Skip to results » Share this article with a colleague

Cyber Security ETF Fired Up On Blowout Earnings

Cyber security – a need of the hour – has developed into a booming industry on growing awareness due to widespread hacking. With the extensive adoption of Internet usage in enterprises and government agencies, cyber attacks are increasingly difficult to prevent. But this evil of technology is in focus, and governments and businesses are willing to beef up their spending on information security. This young corner of the broad technology space represents one of the few growth opportunities left for developed market investors. Growth will likely come from the rapid adoption of mobile, cloud, social and information technologies. In fact, it seems that the cyber security trend has reached a new level this earnings season, as most of the companies in the space impressed with robust results. For investors seeking to play this trend in a basket form, there are a few options, PureFunds ISE Cyber Security ETF (NYSEARCA: HACK ) being the most notable. Buoyed by the solid earnings, this product has surged 12.5% over the past ten days and about 13% since its debut in November. It has gathered enough interest from investors, accumulating $261 million in AUM in just three months. Average daily volume is also solid as it exchanges around 282,000 shares in hand (read: Inside HACK: The Sought-After Cyber Security ETF ). Given this, it might be worth it to shed some light on this newly introduced ETF and its holdings for investors not familiar with it but thinking about jumping in on the space. Below we highlight some of the key details regarding HACK and how recent earnings have led to this fund’s solid run. HACK in Focus The fund offers exposure to the companies that ensure the safety of computer hardware, software, networks, and fight against any sort of cyber malpractice. It tracks the ISE Cyber Security Index, holding 30 securities in its basket. It is well spread out across components, as each security holds no more than 5.71% of total assets. From an industrial outlook, software and programming accounts for nearly two thirds of the portfolio while communication equipment and Internet mobile applications round off the top three. In terms of country exposure, U.S. firms take the top spot at 71%, followed by Israel (13%), the Netherlands (5%), South Korea (5%), Japan (4%), Finland (3%) and Canada (1%). Cyber Security Earnings in Focus The torrid run in HACK was driven by the stellar Q4 earnings and a bullish outlook on CyberArk Software (NASDAQ: CYBR ) and the subsequent surge in its stock price. CYBR shares soared as much as 40.7% to record high of $64.45 since its earnings announcement on February 12. The stock takes the top spot in the fund’s basket with 5.71% share (read: These New ETFs Could be Big Winners ). CyberArk reported earnings per share of 19 cents, outpacing the Zacks Consensus Estimate of a penny and saw nineteen-fold jump from the year-ago quarter. Revenues surged 81% year over year to $36.3 million and strongly surpassed our estimate of $27 million. The company projects earnings per share in the range of 4-6 cents on revenues of $25.5-$26.5 million for the ongoing first quarter. For 2015, revenues are expected to grow 23-26% to $127-$130 million and earnings per share are projected at 24-27 cents. The earnings guidance for both the quarter and the full year is much higher than the Zacks Consensus Estimate of a loss of 26 cents and earnings of one cent, respectively. The cyber security ETF’s second holding – FireEye (NASDAQ: FEYE ) comprising 5.55% share in the basket – also topped our estimates and guided higher. Net loss of 64 cents was narrower than our expected loss of 83 cents and revenues of $143 million exceeded our estimate of $141 million. FireEye expects revenues in the range of $118-$122 million for the ongoing first quarter and $605-$625 million for the full year. Net loss per share is projected at 49-53 cents for the first quarter and $1.80-$1.90 for the full year. The Zacks Consensus Estimate at the time of earnings release was pegged at a loss of 79 cents and $3.18 cents, respectively. FireEye has jumped over 24% to date post earnings announcement on February 11. Further, Qualys (NASDAQ: QLYS ) also contributed to the upside in HACK. The stock shot up as much as 21% and hit a new all-time high of $49.42 on upbeat earnings and robust guidance. The firm occupies the fourth position in the basket and represents about 4.57% of the fund (see: all the Technology ETFs here ). Earnings per share of 9 cents strongly outpaced the Zacks Consensus Estimate by 7 cents while revenues of $37 million also edged past our estimate of $36 million. For the first quarter, Qualys expects revenues of $37.6-$38.1 million and earnings per share in the range of 10-12 cents, which is much higher than the Zacks Consensus Estimate of 6 cents. It also projects 2015 revenues of $167.3-$169.3 million and earnings per share of 50-55 cents, well above our estimate of 34 cents. Juniper Networks Inc. (NYSE: JNPR ) also contributed to the rally in HACK as it is one of its top 10 holdings, accounting for 4.18% share. It beat on both the bottom and top lines by 9 cents and $0.033 billion, respectively. Further, the forward guidance for the first quarter is also encouraging. The company expects earnings per share in the range of 28-32 cents, the midpoint of which is higher than the Zacks Consensus Estimate of 18 cents at the time of the earnings release. Revenues are expected in the range of $1.02-$1.06 billion. Shares of JNPR rose nearly 9% since its earnings announcement on January 27. Apart from the incredible cyber security earnings, HACK also got a boost from Obama’s initiative taken at the first ever summit on Cybersecurity and Consumer Protection held last week. The president signed an executive order that focuses on consumer protection and private-public partnerships against cyber threats (read: Obama Budget Plan Drives Up These Sector ETFs ). Further, Russia’s Kaspersky Lab, a major cyber security firm, released data on the widespread breach in the financial sector early this week that raises concerns about cyber security, propelling the stocks and the ETF higher. The report showed that a group of hackers have stolen at least $1 billion from over 100 banks in 30 countries since late 2013. Bottom Line The cyber security ETF is showing relative strength and should continue to outperform the broad technology space in the coming months given the impressive earnings and solid guidance from many players. Further, the growing awareness for the protection against the cyber threats will likely take the space to new heights. So, for investors seeking to play the potential rise in cybercrime, HACK could be the ticket in 2015.

Pinnacle West Capital (PNW) Q4 2014 Results – Earnings Call Webcast

The following audio is from a conference call that will begin on February 20, 2015 at 11:00 AM ET. The audio will stream live while the call is active, and can be replayed upon its completion. If you would like to view a transcript of this call, please click here. Are you Bullish or Bearish on ? Bullish Bearish Neutral Results for ( ) Thanks for sharing your thoughts. Submit & View Results Skip to results » Share this article with a colleague