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Adage Capital adds stake in Duke Energy

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Adage Capital and Duke Energy Corp

Adage Capital added a new position in Duke Energy Corp (DUK) during the third quarter that ended in September 2014. The position accounted for 0.20% of the fund’s total 3Q portfolio.

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Duke Energy: An overview

Duke Energy Corporation (DUK) is a heavyweight in the US electric utilities industry. It mainly operates in the United States and Latin America. In 2013, its operations had $24.6 billion in revenue. It operates in the United States through its wholly owned subsidiaries Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, and Duke Energy Indiana. It operates in Latin America through International Energy.

Duke Energy operates in the following three business segments: Regulated Utilities, Commercial Power, and International Energy.

Duke agrees to sell unregulated power generation business to Dynegy

In August, Duke agreed to sell its unregulated power generation business to Dynegy Inc. for $2.8 billion in cash. The deal closing is expected to be completed by the first quarter of 2015. The company said earlier, “Although the plants are equipped with significant environmental controls and are competitive in the market, their financial returns have been volatile and not a good long-term strategic fit for the company.”

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Third-quarter results missed estimates

Duke Energy’s third-quarter 2014 adjusted diluted earnings per share (or EPS) was $1.40 compared to $1.46 for the third quarter of 2013. Reported diluted EPS for the third quarter of 2014 was $1.80 compared to $1.42 for the third quarter of 2013. The reported results include a pretax reversal of an impairment charge originally taken in the first quarter based on the estimated fair value of the Midwest generation business.

Total operating revenues rose to $6.40 billion, from $6.22 billion a year ago. The company said that “adjusted EPS for the Regulated Utilities was relatively flat, while stronger results in Commercial Power were substantially offset by lower earnings at International Energy.” International Energy’s earnings fell due to unfavorable results in Latin America driven by lower volumes and higher purchased power costs resulting from poor hydrology in Brazil as well as an unplanned plant outage in Chile.

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Duke’s expansion plans

Duke Energy recently acquired a 20-megawatt AC solar project named Halifax Solar Power Project in Roanoke Rapids, North Carolina, from Geenex and ET Solar Energy Corp. The company said in its 3Q14 earnings release, “We’re investing in solar projects and new natural gas generation, planning a major grid modernization in Indiana, and proposing to invest in the Atlantic Coast Pipeline that will bring diverse  natural gas supplies to eastern North Carolina.” The company said these moves are aimed “to serve the evolving needs of customers into the future.”

Adage Capital’s positions traded in 3Q14

Adage Capital added new positions in Shire Plc (SHPG), Mallinckrodt Plc (MNK), TRW Automotive Holdings Corp. (TRW), and Duke Energy Corp (DUK). It exited positions in AbbVie Inc (ABBV) and Kinder Morgan Inc (KMI). Notable position increases were Citigroup Inc. (C) and NiSource Inc. (NI).

The next part will highlight Adage Capital’s exit from AbbVie Inc (ABBV).

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