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Duke Energy: A Good Buy?

Summary Duke Energy has had an incredible year so far. The company has shown tremendous growth over the course of the year 2014. Net income for Duke Energy during the third quarter of 2014 amounted to $1.27 billion, up by 27% compared to $1 billion in the third quarter of 2013. International Energy and Commercial Power divisions are expected to contribute more toward Duke Energy’s growth, owing to global and domestic expansion and investments into several high-end power projects. Duke has investments of up to $2 billion lined up over the next 7 years which include a major natural gas pipeline in North Carolina. The current period of sliding share prices will represent an ideal entry point for potential investors since Duke Energy has set solid growth prospects in place. Duke Energy (NYSE: DUK ) has had an incredible year so far. The company has shown tremendous growth over the course of the year 2014 with revenues as well as earnings rising. The company has also managed to outperform analysts’ consensus estimates consistently in the quarters so far. The company benefited significantly from the energy boom in the US economy. As the US economy continues to grow, demand for energy has surged incredibly by the industrial sector in particular. Investors have remained confident in Duke’s ability to generate growth. The energy company’s share prices clearly indicate the positive investor sentiment generated by Duke during the year 2014. The prices have been rising consistently over the course of the year, extending the course of their upward climb to almost 5 years. The last 5 years have been highly rewarding for Duke as the energy sector has gained considerable momentum during this time period as well. Share prices for the company have grown from $68 in January 2014 to a five-year high level of $86.83 in December . The company’s shares are currently trading near the $84 mark. Overview of Duke’s Last Reported Financial Performance Duke Energy last reported its earnings back in November. The energy company reported its financial results for the third quarter of fiscal year 2014. During the quarter, the company generated revenues of $6.4 billion, up by a slight margin of 3% as compared to $6.2 billion in the year ago quarter. Operating income for Duke during the quarter amounted to $1.62 billion, down slightly from $1.66 billion in the same quarter of the previous year. Operating incomes fell on account of higher selling costs as well as higher depreciation charges. Net income for Duke Energy during the third quarter of 2014 amounted to $1.27 billion, up by an incredible 27% as compared to $1 billion in the third quarter of 2013. Earnings per share for Duke during the quarter thus amounted to $1.27. It is important to note that Duke Energy continued its strong dividend payout tradition during the quarter and rewarded investors with a dividend of $0.80 per share. Dividends rose from $0.78 per share in the year ago quarter. Future Outlook for Duke Energy Duke Energy has been able to generate tremendous growth during the year owing to a positive market for energy companies. With the growing US economy, energy companies have been facing high demand, and they have been facilitated in meeting that demand as a result of booming crude oil and coal output globally as well as domestically. The company’s Regulated Utilities division has been the principal driver behind its growth and has accounted for more than half of the company’s revenues over the years. However, going forward, the company’s International Energy and Commercial Power divisions are expected to contribute more toward Duke Energy’s growth, owing to global and domestic expansion and investments into several high-end power projects. With demand growth in the US expected to slow down in the coming years, Duke Energy, through its International Energy segment, can generate growth by focusing on its overseas operations. Latin America in particular is expected to show considerable demand growth for electricity over the coming years. Electricity demand in Brazil is expected to grow almost 5% as the manufacturing sector of the country expands. Duke can also look towards the European market for further global expansion. Duke also plans to take advantage of the latest trends in electricity generation with wind and solar power projects in the pipeline that stand to generate 500 MW of electricity. Moreover, Duke has investments of up to $2 billion lined up over the next 7 years which include a major natural gas pipeline in North Carolina. The company’s share prices are currently following a declining trend, but that was because investors had sold shares as prices reached the five year high level. However, with revenues as well as earnings expected to rise in the coming years as the company generates positive returns from its power projects, share prices have a definite upside. Earnings are expected to grow 5% on average over the next 5 years. Conclusion Duke Energy has generated incredible growth over the course of the last 5 years, owing to a favorable US market and enhanced operational efficiency. The company is looking towards overseas operations in order to compensate for slowing demand growth in the US economy. Duke has effectively modified its portfolio in order to account for the latest trends in the energy sector with wind and solar power projects lined up for the future as well. The company also remains committed towards further enhancing operational efficiency and cutting down costs to further fuel earnings growth. The current period of sliding share prices will represent an ideal entry point for potential investors. Investors will gain significantly owing to the solid growth prospects that Duke has to offer. Now that you’ve read this, are you Bullish or Bearish on ? Bullish Bearish Sentiment on ( ) Thanks for sharing your thoughts. Why are you ? Submit & View Results Skip to results » Share this article with a colleague

Eletrobras: Where Is The Value?

Eletrobras is selling well below its assets value. The firm is largely unprofitable. I am worried about its large debt load. Eletrobras (NYSE: EBR ) is a leader in the generation and the transmission of electric power in Brazil. In fact, it provides electricity to the Brazilian people through its 180 power plants. With these extensive operations, the firm is responsible for 34% of the total energy generation in Brazil. The company also owns 61,534 kilometers of transmission lines. It represents 50% of the total transmission lines in Brazil. Briefly, Eletrobras is a major player in the energy generation in Brazil. An electric dam owned by Eletrobras ( Source ) Like many companies in Brazil, Eletrobras appears undervalued at the first look. In fact, the firm has a price to book ratio of only 0.132. Briefly, it means that if Eletrobras sells its assets and gives the proceeds back to its shareholders, investors would instantly have a return of 750%. On the other hand, there are many reasons for a such discount. Firstly, the company is losing money almost every quarter. Moreover, even the EBITDA figures were negative during the Q3 2014 and Q4 2013. Income Statement (click to enlarge) ( Source ) As the table shows, the firm loses $695 million per quarter on average. Furthermore, it has an EBITDA of $2.2 million per quarter on average. In addition to these bad numbers, the firm has a huge debt load. Indeed, Eletrobras has a debt totaling $13,691 million. Based on the trailing twelve months EBITDA, the company has a monstrous debt to EBITDA ratio of 2,281. Personally, it is the highest debt to EBITDA ratio that I ever seen. Consequently, I am worried about the ability of the company to respect its financial obligations. This affirmation is corroborate by the following statement: In the future, added capitalization may be needed. But for the short term, we won’t need it. ( Source ) It simply means that the company won’t run out of money this year or next, but may need more capital in the future. Finally, I am worried about the real earnings power of the firm. Actually, Brazil’s power tariffs are among the highest in the world even though the country gets about 80% of its electricity from hydro. Effectively, this energy source is cheaper than natural gas or oil. Despite these high prices, the firm is unprofitable. In conclusion, Eletrobras seems to be undervalued at first look. After an in-depth analysis of the income statement, it is possible to conclude that the company is a mess. In fact, its weak earnings combined with a huge debt load will eventually create serious problems for the company. Ironically, nobody talks about these problems on Seeking Alpha. Disclaimer : This article is in no way a recommendation to buy or sell any stock mentioned. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade.

EQT Corporation Holds Valuable Assets

Summary EQT is one of the largest natural gas players in the market that is involved in production and midstream activities. The company also enjoys healthy growth prospects. EQT has announced its plans to drill 181 new wells in the Marcellus Shale in 2015 which is one of the most efficient natural gas plays in the US. EQT is in a good position to report healthy financial performances. The consensus target price and the relative valuation reveals attractive upside at its current price. EQT Corporation (NYSE: EQT ) is one of the largest and most dynamic US natural gas producers involved in production and midstream activities. The company aims to fulfill the growing demand for natural gas in the US. EQT is an efficient company that owns valuable gas reserves in the US. EQT has reported healthy financial performances in the past and despite short-term challenges it is in a strong position to create value for its investors in the coming years. EQT Owns Valuable Natural Gas Assets The Marcellus Shale is one of the most productive and efficient gas plays in North America and EQT has greatly benefited from the growth in reserves in the Marcellus Shale. The Marcellus Shale produces about 40% of the US shale gas production. EQT owns about 580,000 net acres in this shale. The total reserves held by EQT account for about 36.4 trillion cubic feet equivalent (cfe) and about half of these reserves (18.5 Tcfe) are present in the Marcellus play. Source: EQT website EQT has reaped healthy growth in the reserves in the Marcellus play with proven reserves growing by a CAGR of 32% in the past few years. EQT estimates the total resource potential of the Marcellus Shale to be 23.9 Tcfe. EQT has announced its capital investment program for 2015 in which it plans to drill 181 wells in the Marcellus Shale. EQT has the proven ability to develop reserves and this new capital investment for drilling new wells will also prove to be beneficial. (click to enlarge) Source: EQT website EQT plans to make a total capital expenditure of $2.5 billion, out of which $2.3 billion is to be spent on EQT’s production activities. Apart from drilling wells in the Marcellus Shale, EQT has also announced that it will drill 58 Upper Devonian wells, 15 Permian wells, and 5 Utica wells. An Efficient Industry Leader EQT possesses more than a century of experience and this makes it an efficient company with leading cost structure in the industry. EQT’s finding and development cost of $0.88 per Mcfe is well below the industry average of $2.74 per Mcfe. EQT also enjoys very low operating costs compared to the industry. EQT’s operating expense is $0.52 per Mcfe which is well below the industry’s average operating cost of $1.68 per Mcfe. The company’s valuable assets and efficient operations make it a strong business with healthy growth prospects. A Look at Historical Performance EQT has reported healthy financial performances in the past decade. The revenue grew by a healthy CAGR of 7% in the past ten years. EQT managed to increase its gross and operating margins which allowed top line growth to translate to the bottom line. The gross margin improved from 45.4% in 2004 to 80.9% in 2014. The operating margin improved from 24% in 2004 to 44% in 2014. Net income increased by a CAGR of 6% in ten years. This improvement in the financial performance is indicative of the strength of EQT’s business. EQT holds valuable assets that have the ability to create value for its investors in the future. (click to enlarge) Source: Morningstar.com The Consensus Target Price Estimate EQT’s healthy prospects are the basis of the attractive valuation made by analysts covering EQT. The consensus target price reveals upside potential at its current share price of $77.50. The mean target price of $113.11 presents an upside of 46% and the median target price of $114.50 presents an upside of 48% based on the current price. The most optimistic intrinsic value estimate of $134, if realized, presents an upside of 73%. It is worth noting that the most conservative intrinsic value estimate of $93 also presents a very attractive upside of 20%. EQT is a great enterprise with assets that make it an attractive long-term investment. Investors that wish to GAIN exposure in the oil and gas industry should consider investing in EQT. The following is a summary of target price estimates polled by Thomson Reuters from 18 brokers covering EQT. Source: Yahoo Finance Relative Valuation EQT’s price to earnings ratio of 24.92 shows that it is overvalued compared to the industry, sector, and S&P 500. However, after incorporating forecasted growth in the price to earnings multiple, THE RESULTANT PEG ratio shows that EQT is undervalued compared to all the benchmarks used. EQT’s share is an appropriate investment at its current share price. Source: Yahoo Finance Conclusion EQT Corporation is a strong business that has reported healthy financial performances in the past. It is one of the most efficient industry players with a low cost structure. It owns huge reserves of natural gas and has the proven ability to economically develop reserves. EQT has announced its 2015 CAPEX plan worth $2.5 billion with proposals to drill 181 more wells in the Marcellus Shale which is one of the most prolific plays in the US. EQT enjoys healthy growth prospects and this makes it a valuable long-term investment. The consensus target price and the relative valuation show that EQT is an attractive investment based on its current price.