Duke Energy: Debt profile
Duke Energy’s (DUK) total debt increased after its Piedmont Natural Gas acquisition. As the interest rates in the US are slowly increasing, debt servicing might become expensive, which could hurt utilities’ profitability going forward. At the end of 2Q17, Duke Energy had total debt of $53 billion. Its debt-to-market-capitalization ratio stands at 0.9x.
Southern Company (SO) and NextEra Energy (NEE) have debt-to-market-capitalization ratios of ~1.0x and 0.5x, respectively. It should be noted that NextEra Energy, despite being the largest of the three, has a much lower amount of debt on its books and a lower debt-to-market-cap ratio, which shows its financial strength.
The net-debt-to-EBITDA ratio shows how many years it would take a company to repay its debt if both its debt and EBITDA stayed constant. Duke Energy’s net-debt-to-EBITDA ratio stood at 5.5x at the end of 2Q17. Its five-year average leverage ratio stands at 4.8x. Duke Energy’s ratio is on the higher side given the industry average (XLU) of ~4.5x.
In comparison to its peers, NextEra Energy’s leverage, or current net-debt-to-EBITDA ratio, is 3.8x. Southern Company (SO) has a net-debt-to-EBITDA ratio near 6.0x.
Duke Energy’s debt-to-equity ratio comes around 1.3x, higher than the industry average of 1.1x. NextEra Energy and Southern Company have debt-to-equity ratios near 1.3x and 2.0x, respectively.
The debt-to-equity ratio shows how much debt is used for financing a company’s assets relative to equity. The higher ratio might indicate higher debt servicing costs. Among the top utility stocks, Southern Company’s debt-to-equity ratio is on the higher side, which could be a concern.
Duke Energy’s debt profile appears relatively stronger than that of Southern Company. NextEra Energy’s debt profile seems the strongest of these three.