The market is soft and its effect is clearly evident on Duke Energy (DUK, Financial). The results weren't strong, which was mainly due to a milder-than-normal weather. A soft performance in Latin America and weaker retail load also acted as a headwind. The results didn’t surprise Duke and it is on track to achieve its earnings guidance. The company is now focusing on its long-term growth prospects and it is positioning itself for better business growth in the coming quarters.
Duke's moves
It is pleased with some strategic moves that it took in the past which are now paying off well for it. The merger with Progress Energy has helped Duke well and it is now seeing good synergies from it in the coming quarters. In addition, the company is also investing significantly in other solar projects and new natural gas generation. This can be another great move by Duke which will strengthen its long term prospects.
Duke is planning a major grid modernization in Indiana also proposing investments in Atlantic Coast pipeline which will facilitate natural gas supply to Eastern North California. These opportunities and strategic steps are expected to trigger Duke’s growth strategy further, helping it to perform well even in this soft market. Duke is now planning to let go of its non-yielding facilities and focus mainly on the most potential facilities. Under this, it is planning to sell its Midwest generation business to Dynergy.
Improving its footprint
Another exciting news is that Duke has recently finalized an agreement to purchase North Carolina Eastern Municipal Power Agency for $1.2 billion. The company is expecting good contribution from this move. These proceeds will lead the Power Agency’s cities to reduce the customer rate and debt burden. The customers of Duke and Progress Energy collaboration are also expected to benefit from this long-term saving and increased fuel diversity.
Duke’s long term prospects looks strong. It is entering into many such initiatives which have good potential for long term growth. Duke is looking for share repurchase agreement to maintain cash on its balance sheet and under this it also filed FERC approval. It is also negotiating on 30-year full requirement wholesale agreement with the power agencies. It is planning to park the funds arising from these initiatives in solar expansion projects in North Carolina, supporting its portfolio. These projects will surely support its ability to provide its customers with affordable reliable energy from increasing diverse generation portfolio.
Conclusion
Now moving to the fundamentals, with a trailing P/E of 24.36 the stock looks reasonable. In the next five years the company’s earnings are expected to be impressive as in this soft market its earnings are growing at a CAGR of 4.79% which is better than the industry average of 0.92%. It has many promising points and its investment in the solar expansion projects are expected to benefit the company even in this soft market. However, I would like to suggest the investors to stay away from Duke now but for the long term the investors can definitely include Duke Energy in their portfolio.
