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Duke: High Yields, Price Target

March 12, 2012 | About:

An energy company, as its name suggests, Duke Energy (NYSE:DUK) has been doing really well of late, with analysts giving opinions on the “energetic” rise, as well as price estimates and ratings. This bodes well for the company.

Duke has three channels of distribution for its services. They are:

· Commercial power

· U.S. franchised electric and gas

· International energy

Duke has been quite active in its lifetime. In June 2009, the purchase of the Aguaytia Integrated Energy Project in Peru was completed when Duke picked up the final 24% noncontrolling interest. June was its month and 2009 was its year for, again, the company acquired North Allegheny Wind LLC in Western Pennsylvania.

I am a big fan of dividends because when a company says “dividend,” it right away indicates it values and honors its shareholders. It wishes to reward them for their loyalty. And receiving dividends is just plain lovely. Duke Energy Corporation yields a nice dividend of 4.7%. Its 3 month average share volume is 12,785,100. Its market capitalization is $28.41 billion. With the earnings per share being $1.38, its price to earnings ratio is 15.43.

American Electric Power (NYSE:AEP) is its competitor. This company has a market capitalization of $20.06 billion. Its quarterly revenue year-on-year growth at 6.6% is higher than that of Duke which is .5%. But that doesn’t faze me: as long as it is positive, there is always hope. The earnings per share of American Electric is $3.76 and its price to earnings ratio is 11.05. It has 18,712 employees, about the same as Duke which has 18,440. And if you are wondering why I mention employees here and what that has to do with cold, hard monetary facts, people are the biggest monetary “fact” of them all. People do the enterprise make. Of course, quality counts as much as quantity, but the more the merrier, I guess. There is strength in numbers. Also assuming here these are top-notch people.

The operating margin of these two companies is also quite similar, with Duke Energy’s being 20.61% and American Electric’s being 19.96%. Duke Energy Corporation has a five-year expected price/earnings to growth of 3.88 while that of American Electric Power Co. Inc. is 4.14.

You would pay about $21 for one share of Duke, and that lies quite close to its 52-week high of $22.12. Its low has been $16.87 for the same period.

Goldman Sachs (NYSE:GS) recently underscored Duke Energy Corporation’s Buy rating. On January 11, Zacks Investment Research underlined a neutral share rating with a price target of $23. In a research note on December 13, 2011, analysts at UBS AG (UBS) raised their price target on Duke from $20 to $21. An infinitesimal amount, some may say, but I am sure Duke loves all the new-found attention. That means 2012 is also “Duke’s year.” Hope it lives up to the praise.

Duke Energy Corporation’s profit margin is 12.89% and its operating margin is 20.61%. Its return on assets is 3.11% and its return on equity is 8.21%. If there is one slightly negative figure to mention, it is the quarterly year-on-year growth of -29.60% but we must keep it real. It is always better to get the complete picture before one makes a decision. And that applies to anything, not least, shares.

And yes, the eternal issue of debt. Total debt of $20.11 billion. How does it get that way, pray tell? The debt- equity ratio of the most recent quarter is 87.83 and the current ratio is 1.23.

The growth for this year is predicted to be -.7%. Who said analysts always window dress? For next year, the trend is expected to be reversed as growth hopefully climbs to .7%. The annual growth for the past 5 years has been .52% and for the next 5 years, the company plans to sharpen up, apparently, and up that figure to 3.87%.

Take Duke Energy’s return on equity. It is 8.21% as we have earlier seen, giving the company an industry rank of 47/131. Its quarterly revenue growth rank is 69/131. Not exactly any signs of an industry leader, but, hopefully, it has the makings of one and can tap into that. Compare this with industry leader Juhl Wind, Inc. (JUHL.OB), priced at 1.01, which has a return on equity of 44.93%.

In December of 2011, Duke Energy was elevated by research firm FBR Capital from an Underperform to a Market Perform. A nice little vote of confidence there, along with all the other shout-outs it received this year. With its high price target of $23, there’s not much by way of profit to attract investors who traipse into this position right now. There is the lovely lure of the 4.7% dividend. Hold on, those of you who are proud Duke shareholders. And for those that are not, a high price target is only that: As I always say, you can set your own high target… and do everyone a favor in the bargain if the share gets there.

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GuruFocus has detected 4 Warning Signs with Duke Energy Corp $DUK.
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