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How Is Duke Energy’s Earnings Growth Placed in the Long Term?

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Nov. 29 2016, Updated 8:04 a.m. ET

Duke Energy’s earnings

Duke Energy (DUK) posted better-than-expected results in 3Q16. The company’s management stated that with these strong third quarter financial results—and with the early closing of the Piedmont Natural Gas acquisition—the company is progressing toward the higher end of its 2016 annual earnings guidance range of $4.50–$4.70 per share.

Duke agreed to sell a major part of its international business last month, which will likely fortify its regulated operations and could boost its earnings stability even more. Duke’s agreement to sell its Latin American (ILF) generation segment might also improve its return on equity. Duke Energy gets more than 90% of its profits from regulated operations. The sale these proceedings may be invested to improve Duke’s regulated rate base.

Duke seems well placed to achieve the 4%–6% earnings growth through 2020 that the management expects. Duke’s Piedmont Natural Gas acquisition will likely accelerate growth in its regulated utilities (XLU) because it will give it easier access to cost-effective natural gas.

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US utilities looking beyond the traditional

Meanwhile, flat growth prospects in the electric business have led US utilities to expand beyond their traditional utility operations. Bigger utilities have taken the inorganic route in order to expand their gas and midstream operations.

Southern Company’s (SO) and Duke Energy’s (DUK) business mix is now less dependent on the electric business due to added exposure to gas distribution after their respective acquisitions. NextEra Energy’s (NEE) footprint is expected to substantially grow in Texas from its Oncor acquisition. On the other hand, midsize utilities are trying to expand their midstream operations to achieve above-normal earnings growth.

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