Duke Energy (DUK, Financial) reported a robust increase in earnings in the recently reported second quarter. The company impressed investors with its strong results. However, the company failed to deliver on the top line expectations. But then, Duke posted an upbeat outlook for the upcoming quarter that investors should not ignore. Let us take a detailed look at Duke Energy and see why it is a good investment.
Second-quarter results
Duke’s second quarter revenue rose 1.2% to $5.95 billion. This is better than $5.88 billion which it posted in the same quarter last year. However, it missed analysts’ estimates as they were modelling revenue of $6.12 billion. On the other hand, the earnings of the company rose by a good 80%. The earnings rose to $1.11 per share as compared to the same quarter last year. Analysts, on the other hand, were expecting Duke to post earnings of $0.98 per share.
Duke looks in good shape as the recent results reveal. The company mainly benefited from the summer season and a lower tax rate. Duke is looking to improve its performance in the coming quarters. In addition, the approval to raise power prices in regions such as North and South Carolina will help it in improving its financial performance in the future.
Focusing on improving profitability
Duke is focusing on numerous initiatives to improve its profitability. The company has a well organised five-year action plan. It is planning to invest around $16-$20 billion in growth ventures including new generation, infrastructure projects, and regulatory compliance initiatives. Duke is expecting these investments to contribute about 4% to 6% growth in the EPS in the coming years. This will help the company to gain market share, making its long term prospects strong.
Duke Energy recently announced an agreement to purchase North Carolina Eastern Municipal Power Agency's minority ownership and certain existing Duke Energy Progress plants. With this agreement, Duke is now having a 30 year contract of supplying power to NCEMPA. This a great opportunity in front of Duke, and the company is expecting this agreement to benefit both customers and the members of NCEMPA.
Duke Energy is performing well, but it has to watch out for the moves of its competitors such as American Electric Power (AEP), which also recently released its results for the second quarter reporting a good 16% growth in the EPS. The company seems confident of a better performance in the coming quarters. It has also posted an upbeat outlook and is expecting the earnings to be in the range of $3.35 to $3.55 per share, which is impressive. Duke should keep a check on American Electric's moves and should seek other profitable ventures to improve its profitability.
Valuation
Moving on to the fundamentals and valuation of the stock, with a trailing P/E of 26.60, the stock looks quite reasonable and its forward P/E of 17.40 indicates that the company will show earnings growth.
Also, looking at the next five-year time frame, Duke’s earnings are expected to improve at a CAGR of 4.76%. Hence, after looking at the complete scenario, it can be noted that the stock looks profitable in both the short term and the long term. So, I would suggest that investors should consider Duke Energy for their portfolio.
