The largest electric power holding company in the United States, Duke Energy Corp (NYSE:DUK), has only risen 4.91% YTD, a far cry from the 15.34% return provided by the Dow Jones Industrial Average over the same time period.
Duke Energy Corp (NYSE:DUK) is the largest electric power holding company in the US, serving more than 7 million customers in 6 states. Based on market capitalization, the company is valued at $47.25 billion. Currently, the company’s business model appears relatively strong with a TTM profit margin of 9.63%.
So with Duke Energy Corp (NYSE:DUK) still trading at a substantial discount from its 2006 highs, is this utility a solid investment in powering the world of tomorrow or should investors stay away from this electrifying company?
Strengths:
Historic Assets Growth:
Duke possesses a proven track record of consistently increasing the value of its assets, through acquisitions and growth, representing the ability of the company to expand
In January 2011, Duke Energy Corp (NYSE:DUK) agreed to acquire Progress Energy for about $13.7 billion, increasing the company’s nuclear portfolio to 9.0 GW, and adding 3.1 million customers and 23,000 MW in the Carolinas and Florida to Duke’s portfolio, giving the company greater diversification and a stronger presence in its industry
Institutional Vote of Confidence: 52% of shares outstanding are held by institutional investors, representing roughly $24 billion in investment, displaying the confidence some of largest investors in the world have in the company and its future
Relatively Low Volatility: Currently, Duke carries a beta ratio of 0.32, representing a company which trades with significantly less volatility than the overall market
Broad Customer Base & Geographical Reach: The company is the largest electric power holding company in the United States, serving more than 7 million customers in six states, and with this broad customer base and geographical reach comes a greater level of security and predictability for investors
Free Cash Flow Position: In 2013, Duke Energy Corp (NYSE:DUK) is projected to generate roughly $1 billion in free cash flow, giving the company the financial strength to pay out its quarterly dividends, which yield 4.57% annually
Weaknesses:
High Valuation: Presently, the company possesses a price to earnings ratio of 20.22, a price to sales ratio of 2.41, and a price to book ratio of 1.15; all of which indicate a company trading with a high valuation relative to the company’s growth prospects
Net Debt: Duke’s $2.2 billion in cash and cash equivalents is outweighed by its debt load of $44 billion, resulting in a net debt of $42 billion, or $59.82 per share, a major financial weakness of the company
Historic Revenue Decay: Revenue generated by the company has fallen from $22.52 billion in 2003 to $19.62 billion in 2012; a trend which is anticipated to reverse with projections placing 2015 revenue at $26.79 billion
Opportunities:
Expanding Customer Base: Since 2009, Duke Energy Corp (NYSE:DUK) has acquired 0.11 million customers, bringing their current customer base to 7.21 million, with further mild growth in this metric projected, presenting opportunity to the company to take advantage of 0.44 million new customers by 2019
