Duke Energy Corporation (DUK) is a major energy company in the United States. The company is divided into two primary segments: Electric Utilities and Infrastructure (EU&I); and Gas Utilities and Infrastructure (GU&I).

As DUK gears up to announce its fourth-quarter and year-end 2023 financial results on Thursday, February 8, 2024, this article sheds light on DUK’s fundamentals to gauge its worthiness as an investment candidate. Let’s understand in detail.

For the fourth quarter, Wall Street forecasts DUK’s revenue to experience a 2% year-over-year plunge to $7.20 billion, while its EPS for the same quarter is projected to climb 38.5% year-over-year to $1.54. Meanwhile, during the third quarter, DUK witnessed growth in both its topline and adjusted profit, although its revenue fell short of analyst estimates.

DUK reported revenue of $7.99 billion in the third quarter, slightly below analysts’ anticipated $8.13 billion. However, the company's adjusted earnings per share stood at $1.94 for the same period, surpassing projections of $1.92 per share.

Brian Savoy, DUK’s CFO, noted that earnings growth was driven by factors such as rate cases and riders, favorable weather conditions, and decreased operations and maintenance (O&M) expenses resulting from cost mitigation efforts.

These elements had a positive impact on its electric utilities business. However, they were offset by reduced weather-normalized volumes, elevated storm costs, and higher interest expenses.

Nevertheless, despite the dimmed fundamentals, on January 11, 2024, DUK declared a quarterly dividend of $1.03 per share, payable to its shareholders on March 18, 2024. The company’s annual dividend of $4.10 translates to a 4.26% yield on the prevailing price, while its four-year average dividend yield is 4.10%. Moreover, the company has a record of 12 years of consecutive dividend growth.

Furthermore, DUK’s Chair, President, and Chief Executive Officer, Lynn Good, highlighted DUK’s long-term strategic goals, emphasizing the company’s commitment to deliver sustainable value and achieve earnings growth of 5 to 7% over the next five years, leveraging its attractive dividend yield and investments in regulated utilities.

In terms of price performance, DUK’s shares surged 5.9% over the past three months but tumbled 2.6% over the past month to close the last trading session at $95.25.

Here are the fundamental aspects of DUK that could influence its performance in the near term:

Mixed Financials

For the fiscal third quarter, which ended on September 30, 2023, DUK’s total operating revenue increased 1.9% year-over-year to $7.99 billion, whereas its total operating expenses rose 1.7% from the year-ago value to $5.89 billion.

Furthermore, the company’s attributable net income dropped 11.9% from the prior-year quarter to $1.25 billion. Meanwhile, its adjusted EPS came in at $1.94, up 8.9% year-over-year. However, during the same quarter, DUK’s cash and cash equivalents stood at $324 million, declining 20.8% compared to $409 million as of December 31, 2022.

Mixed Profitability

DUK’s trailing-12-month EBITDA margin of 44.48% is 33.4% higher than the industry average of 33.34%. Also, its trailing-12-month gross profit margin of 47% is 14.8% higher than the 40.96% industry average.

On the other hand, the stock’s trailing-12-month net income margin of 4.17% is 51.9% lower than the industry average of 9.92%. In addition, its trailing-12-month asset turnover ratio of 0.16x is 28.1% lower than the 0.22x industry average.

Stretched Valuation

In terms of forward non-GAAP PEG, DUK’s 2.85x is 11.3% higher than the industry average of 2.56x. Also, its forward EV/Sales multiple of 5.39 is 42.9% higher than the 3.78x industry average. Likewise, the stock’s forward Price/Sales multiple of 2.53 is 30.9% higher than the 1.93x industry average.

POWR Ratings Exhibit Uncertainty

DUK’s fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DUK has a C grade for Growth, justified by its mixed financial performance in the third quarter. Likewise, the stock’s C grade for Quality is in sync with its mixed profitability metrics. Meanwhile, DUK’s D grade for Value is consistent with its stretched valuation.

In the Utilities - Domestic industry, DUK is ranked #11 out of the 63 stocks.    

Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Sentiment. Get all ratings of DUK here.

Bottom Line

While DUK’s attractive dividend yield and long-term strategic objectives might bode well for investors, the company’s mixed fundamentals and elevated valuation underscore the need for exercising caution. Thus, it might be prudent for investors to await a more opportune entry point within the stock.

How Does Duke Energy Corporation (DUK) Stack Up Against Its Peers?

While DUK has an overall grade of C, equating to a Neutral rating, you may check out other stocks within the Utilities - Foreign industry: Centrica plc (CPYYY), TransAlta Corporation (TAC), and PT Perusahaan Gas Negara Tbk (PPAAY), carrying A (Strong Buy) and B (Buy) ratings. To explore more Utilities - Foreign stocks, click here.    

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

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DUK shares were trading at $95.23 per share on Tuesday afternoon, down $0.02 (-0.02%). Year-to-date, DUK has declined -1.87%, versus a 3.61% rise in the benchmark S&P 500 index during the same period.

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