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DUK to Divest Few Midwest Assets

Zacks Equity Research

Duke Energy Corporation (DUK) continues to follow its systematic asset divestment strategy. The company currently intends to sell several power plants in the Midwest. Duke Energy has already appointed Citigroup, Inc. (C) to assist in the deal. The bidders are expected to submit their application in the beginning of 2014.

All the power plants are part of Duke Energy’s commercial power segment. The company sells power, generated from the aforesaid plants, on the wholesale market.

Duke Energy will likely accumulate $1.5 - $2.0 billion from the aforesaid transaction. Duke Energy can utilize the net proceeds for its upcoming projects, which will enable the company to diversify the generation portfolio while meeting the government’s greenhouse-gas emissions limits.

In the third quarter of 2013, Duke Energy’s earnings from power plants plunged 34.1% sequentially to $27 million primarily due to a decline in industrial demand and natural gas oversupply. We believe weak performance of these assets propelled the company to follow the asset-divestiture initiative.

The divestment of the non-core assets will allow the company to focus on the acquisition of growth-oriented assets.

During third-quarter 2013, Duke Energy announced that the company inked a definitive agreement to sell its remaining 50% interest in DukeNet for nearly $210 million in cash. The DukeNet assets come under the company’s non-core business. Duke Energy expects to complete the deal by first-quarter 2014.

Currently, Duke Energy is in expansion mode besides extending the renewable portfolio. In Sep 2013, the company announced that it will construct, own and operate two large-scale wind facilities of 200 megawatt each in South Texas. On the inorganic growth front, the company recently acquired Progress Energy Inc.

Duke Energy currently has a Zacks Rank #3 (Hold). Other stocks from the industry that are presently performing well include Brookfield Infrastructure Partners L.P. (BIP) and Alliant Energy Corporation (LNT), each has a Zacks Rank #2 (Buy).

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