On Mar 5, we reiterated our Neutral recommendation on Duke Energy Corporation (DUK) based on its stable electricity and gas operations which generate a relatively steady and growing earnings stream. The company holds a Zacks Rank #3, which translates into a short-term Hold rating, and correlates with our long-term recommendation.
Why the Neutral Stance?
Based in Charlotte, North Carolina, Duke Energy is a diversified energy company with more than $100 billion in total assets. Its regulated utility operations serve approximately 7.1 million electric customers located in six states in the Southeast and Midwest. Its commercial power and international business segments own and operate diverse power generation assets in North America and Latin America, including a growing portfolio of renewable energy assets in the U.S.
Duke Energy focuses on core utility operations to build its rate base through capital expenditure investments. Additionally, the company is proactively and effectively mitigating long-term environment-related risks through investment plans and constructive dialogue with policymakers. The company has also set up an electricity transmission joint venture with American Electric Power Co. Inc. (AEP) to develop a 240 mile, 765-kV transmission line in Indiana. The JV –– Pioneer Transmission –– is expected to become operational in 2014. The transmission line will transmit electricity from the relatively oversupplied Midwestern Independent System Operator (:MISO) to PJM Interconnection (:PJM).
Looking ahead, the company’s stable outlook is supported by its strong balance sheet and ongoing capital expansion projects which add visibility to the story.
Looking at the earnings surprise history, the company has steadily beaten the Zacks Consensus Estimates in the past four quarters. The average positive surprise in the trailing four quarters comes to 5.5%.
On the flip side, market apprehensions remain after the aftermath of Hurricane Sandy. New Jersey, where Duke Energy has about 65% of its customers, was hit hardest by Sandy. Also, following the fourth quarter earnings release, analysts apprehending a continuing trend of stable demand, weak prices and sluggish economic recovery remained on the sidelines.
For the first and second quarters of 2013, the Zacks Consensus Estimates for earnings are $1.05 and 96 cents per share, respectively. This reflects respective year-over-year fall of 7.9% and 5.7%.
Other Stocks Worth Considering
Other stocks worth considering in the utility industry are Brookfield Infrastructure Partners L.P. (BIP) and Pike Electric Corporation (PIKE). These stocks sporting a Zacks Rank #1 (Strong Buy) have the potential to rise significantly from current levels.
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