Duke Energy Corp (DUK, Financial) has seen a daily gain of 1.86% and a 3-month loss of -1.77%. Despite this mixed performance, its Earnings Per Share (EPS) stands at a respectable 1.64. The question now is, is Duke Energy (DUK) modestly undervalued? In this comprehensive analysis, we will delve into the company's valuation, financial strength, and growth prospects to answer this question.
A Snapshot of Duke Energy Corp (DUK, Financial)
Duke Energy is one of the largest U.S. utilities, with regulated utilities in the Carolinas, Indiana, Florida, Ohio, and Kentucky. They deliver electricity to 8.2 million customers and their natural gas utilities serve more than 1.6 million customers. Duke Energy has agreed to sell its commercial renewable energy in mid-2023. Despite a current stock price of $89.12, the GF Value, a proprietary estimate of fair value, stands at $112.11. This discrepancy suggests that Duke Energy may be modestly undervalued.
Understanding GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value suggests the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Duke Energy (DUK, Financial) is believed to be modestly undervalued. At its current price of $89.12 per share and a market cap of $68.70 billion, Duke Energy stock is believed to be a potentially profitable investment.
Because Duke Energy is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Assessing Duke Energy's Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review the financial strength of a company before deciding whether to buy its stock. Duke Energy's cash-to-debt ratio of 0.01 is worse than 95.2% of 479 companies in the Utilities - Regulated industry. GuruFocus ranks the overall financial strength of Duke Energy at 3 out of 10, indicating that its financial strength is poor.
Profitability and Growth of Duke Energy
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Duke Energy has been profitable 10 years over the past 10 years. Its operating margin of 22.95% is better than 77.62% of 496 companies in the Utilities - Regulated industry. Overall, GuruFocus ranks Duke Energy's profitability as fair.
One of the most important factors in the valuation of a company is growth. The average annual revenue growth of Duke Energy is 2.8%, which ranks worse than 73.75% of 480 companies in the Utilities - Regulated industry. The 3-year average EBITDA growth is 0.7%, which ranks worse than 64.55% of 457 companies in the Utilities - Regulated industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Duke Energy's ROIC was 3.3, while its WACC came in at 5.09.
Conclusion
In conclusion, Duke Energy (DUK, Financial) is believed to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 64.55% of 457 companies in the Utilities - Regulated industry. To learn more about Duke Energy stock, you can check out its 30-Year Financials here.
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