A First Look at Duke Energy (DUK).

Bonds outstanding: They have $4.5 billion in outstanding bonds.

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What the company does – Duke Energy is one of the largest multistate holding companies of regulated electric and gas utilities, with regulated utilities in the Carolinas, Indiana, Ohio, and Kentucky that deliver electricity to about 4 million customers and deliver natural gas to 500,000 customers. Duke’s competitive generation and power retailing business operates primarily in the Midwest, and its international energy segment owns and operates hydroelectric generation assets in Latin America.

Morningstar’s take – Pending necessary regulatory approvals, Duke is poised to become the largest regulated utility in the United States following its announced merger with Progress Energy PGN, which is expected to close at the end of 2011.

DIVIDEND RECORD – Duke was a dividend grower from 1987 – 2005, then they cut the dividend from $0.32 per quarter to $0.21 in 2005.  The dividend has grown back to $0.25 since then.

Dividend: $0.25 quarterly

Dividend yield: 4.6% ($1.00 annual dividend / $21.42 share price)

Dividend payout ratio: 72% using Google Finance’s recent EPS of $1.38 OR 88% using the average earning power of $1.13 per share

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EARNING POWER – $1.13 per share at 1.333 billion shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$1.57

$1,863 M

1,188 M

$1.40

2007

$1.18

$1,500 M

1,266 M

$1.13

2008

$1.07

$1,362 M

1,267 M

$1.02

2009

$0.83

$1,075 M

1,294 M

$0.81

2010

$1.00

$1,320 M

1,319 M

$0.99

2011 (est)

$1.43

$1,911.21 M

1,333 M

$1.43

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.38

$511 M

1,331 M

$0.38

2011 Q2

$0.33

$435 M

1,333 M

$0.33

2011 Q3

$0.35

$472 M

1,333 M

$0.35

2011 Q4 (est)

$0.37

$493.21 M

1,333 M

$0.37

2011 total (est)

$1.43

$1,911.21 M

1,333 M

$1.43

Six year average adjusted earnings per share is $1.13

Consider contrarian buying below $9.04 (8 times average adjusted EPS)

Consider value buying below $13.56 (12 times average adjusted EPS)

Duke Energy is currently trading at 18.9 times average adjusted EPS.  This stock is still priced for investment, but it’s pretty close to speculative pricing.

Consider speculative selling above $22.60 (20 times average adjusted EPS)

BALANCE SHEET – Shareholder equity is very stable, but I’m a little concerned about the low current ratio of 1.23 and quick ratio of 0.42.   Where will Duke Energy get money to cover current liabilities?  Their

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Book value per share: $17.10

Price to book value ratio: 1.25 (under 1.0 is good) ($21.42 / $17.10)

Current ratio: 1.23 latest quarter (over 2.0 is good) ($6,273 M current assets / $5,115 M current liabilities)

Quick ratio: 0.42 (over 1.0 is good) ($2,178 M cash / $5,115 current liabilities)

Debt to equity ratio: 0.77 (lower is better)

Percentage of plant, property, and equipment compared to total assets: 68.9%

CONCLUSION – Duke Energy is trying to merge with Progress Energy (http://www.reuters.com/finance/stocks/DUK/key-developments/article/2441001 ).  Mergers typically involve large sums of debts which erodes shareholder equity.  I would wait to buy the combined company after some combined analysis confirms a value price.  However, if the merger fails, then don’t buy Duke above $13.56.  The stock is currently too close to speculative pricing and the lack of current assets gives me pause.  Europe is already in recession and China has a looming recession (http://teapartyeconomist.com/2012/02/13/chinas-imports-fall-indicating-an-economis-slowdown/ ).  A worldwide recession will ensue and drop stock prices everywhere.

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DISCLOSURE – I don’t own Duke Energy (DUK).

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Published in: on February 14, 2012 at 4:31 pm  Leave a Comment  

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