Duke Energy Corp (DUK), The Southern Company (SO): Are We Sure This Is Progress?

When investors hear about a merger of two powerful companies, they usually expect that there will be some short term pain, but long-term gain. However, once in a while, a merger doesn’t go as expected and investors are left wondering what went wrong? Unfortunately, it seems this might be happening with Duke Energy Corp (NYSE:DUK). Duke Energy Corp (NYSE:DUK) merged with Progress Energy to create an energy powerhouse. However, the cost wasn’t cheap, as Duke Energy Corp (NYSE:DUK) had to issue millions of new shares and take on debt to make this happen. Since these two companies have become one, there are several troublesome numbers that suggest the combined entity’s growth may not progress the way investors expect.

Mergers are exciting, but growth is what matters
Pretty much no matter the industry, one thing investors want from their company is earnings growth. While the utility industry is looked to for safety and yield, it’s still nice to see a company posting higher earnings.

This is one of the biggest problems with the Duke Energy Corp (NYSE:DUK) and Progress merger, since the union analysts have barely changed their earnings growth expectations. Prior to the merger, most analysts expected Duke Energy Corp (NYSE:DUK) to grow earnings by 2% to 3%; today, that number stands at 4.03%. This improvement might be okay, but it still represents the slowest growth of their peers.

Duke Energy Corp (NYSE:DUK) counts companies like The Southern Company (NYSE:SO), Consolidated Edison, Inc. (NYSE:ED), and Integrys Energy Group, Inc. (NYSE:TEG) as some of its peers. Each of these companies offers a solid dividend, but the difference is, two of the three are expected to grow earnings at a faster rate than Duke. In fact, Integrys Energy Group, Inc. (NYSE:TEG) is expected to see earnings growth of 5.5% and The Southern Company (NYSE:SO) is expected to grow by 4.8%. Only Consolidated Edison, Inc. (NYSE:ED) has a lower projected growth rate at 2.27%.

The growth that wasn’t
Sticking with the growth theme, Duke’s EPS was actually down 9.73% in the current quarter if you adjust for things like weather, and other changes. While the company gained about $0.44 per share in EPS, $0.35 of this was from the addition of Progress Energy, and $0.10 was from favorable weather.