NEW YORK, NY--(Marketwire - Jan 31, 2013) - Electric energy sector is looking towards a better year ahead as the sector failed to perform well during 2012. It lagged behind the broader market due to demand slack. However, the demand is likely to pick up this year, easing the pressure on utility companies. The sector is also experiencing consolidation following M&A activities. Duke Energy Corporation carried out its controversial acquisition of Progress Energy. The resulting entity is the largest utility company in the U.S. However, the sector is not completely out of the trouble zone. Economic uncertainty is likely to keep the sector in check.
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American Electric Power Co. recently announced its quarterly dividend of 47 cents per share. Like most other utility companies, American Energy has a healthy dividend yield ratio of over 4 percent. The company is expected to grow its earnings by 9 percent annually in the next 5 years. American Electric Power also has a diversified portfolio and the company needs to reorganize its operations as its main Ohio energy market is moving towards deregularization. The development is likely to have mild negative impact on the company as it may lead to instability in revenues. However, since American Electric Power is operational in 11 states in the U.S., it should be able to diffuse the impact.
American Electric Power also needs to deal with macroeconomic factors including slumped demand for energy. Subdued demand is likely to affect medium-term growth for the company. American Electric Power is planning to counter lower demand by curtailing its costs. The company may reorganize its business structure and may resort to layoffs to cut costs. Another risk factor for the company is its reliance on regulated utility business.
Duke Energy Corporation is one of the biggest players in electric energy segment. As an income stock, Duke Energy holds promise as it offers 4.50 percent dividend yield and has not missed paying quarterly dividend in the last 86 years. The electric energy company is scheduled to announce its quarterly earnings on February 13 and is likely to have a positive impact on the stock price.
Duke Energy is expected to take some tough decisions on capital investment front. The company is likely to face further delay with regards to its Lee Nuclear Station in South Carolina, while it contemplates retiring Crystal River 3 nuclear plant. However, the company commissioned its battery storage system at its wind power project in Texas. The $44 million project was funded by the company and the U.S. Department of Energy equally. The project belongs to Duke Energy's subsidiary Duke Energy Renewables. Through this subsidiary, the company is looking to augment its position in commercial renewable energy generation segment. However, Duke Energy needs to manage its cash flows conservatively as utility companies tend to have high outflows for capital expansion.
Duke Energy stock trades at P/E ratio of 21.2, which is considerably higher than P/E ratios of peers such as Exelon Corporation. However, it also shows better EPS growth rate and margins including operating and net margin. With its Progress Energy acquisition in 2012, Duke Energy is likely to reap benefits of scale.
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- Investment & Company Information
- Duke Energy Corporation
- Progress Energy
- American Electric Power
Michael Thomas Smith