The stock of Duke Energy (NYSE:DUK, 30-year Financials) gives every indication of being modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $101.31 per share and the market cap of $77.9 billion, Duke Energy stock appears to be modestly overvalued. GF Value for Duke Energy is shown in the chart below.
Because Duke Energy is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which is estimated to grow 3.38% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Duke Energy has a cash-to-debt ratio of 0.01, which which ranks in the bottom 10% of the companies in the industry of Utilities - Regulated. The overall financial strength of Duke Energy is 3 out of 10, which indicates that the financial strength of Duke Energy is poor. This is the debt and cash of Duke Energy over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Duke Energy has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $24.1 billion and earnings of $1.73 a share. Its operating margin of 22.80% better than 73% of the companies in the industry of Utilities - Regulated. Overall, GuruFocus ranks Duke Energy’s profitability as fair. This is the revenue and net income of Duke Energy over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company’s stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Duke Energy is -1.3%, which ranks worse than 69% of the companies in the industry of Utilities - Regulated. The 3-year average EBITDA growth rate is -7.9%, which ranks worse than 84% of the companies in the industry of Utilities - Regulated.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Duke Energy’s ROIC is 4.47 while its WACC came in at 3.44. The historical ROIC vs WACC comparison of Duke Energy is shown below:
In short, The stock of Duke Energy (NYSE:DUK, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 84% of the companies in the industry of Utilities - Regulated. To learn more about Duke Energy stock, you can check out its 30-year Financials here.
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