Why Duke Energy Seems Well Placed for Stable Long-Term Growth
Duke Energy’s earnings
According to analysts’ estimates, Duke Energy (DUK) will report earnings of $1.03 per share in 1Q17. In the same quarter last year, it reported earnings of $1.13 per share. The company beat analysts’ earnings estimates in two of the last eight quarters.
Duke Energy’s management expects earnings to rise 4.0%–6.0% annually for the next five years. The target earnings growth is in line with the industry average. It’s worth noting that Duke’s peers Dominion Resources (D) and NextEra Energy (NEE) have forecast their earnings to rise ~10.0% in the next few years, nearly double the industry average.
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Long-term earnings drivers
Duke Energy’s earnings this year are expected to be driven mainly by its investments in the regulated rate base. Duke plans to spend nearly $37.0 billion on capital projects through 2021. Its expanded gas distribution operations after the Piedmont acquisition will most likely lead to customer growth.
Duke’s coal-dominated generation mix has been shifting to low-emitting sources such as natural gas and renewables. In 2016, the utility generated 34.0% of its total electricity from coal compared to 61.0% in 2005. Natural gas–fired generation accounted for 28.0% of the total electricity generated in 2016.
Slowing demand growth of electricity consumption and a greater possibility of rate hikes this year may make utilities (XLU) vulnerable. However, Duke Energy seems well placed to achieve fair earnings growth and deliver healthy dividends. Management has given an earnings guidance of $4.50–$4.70 per share for 2017.