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Market Price (3/31/2016): $80.68/share; ST-Target: $90/share; NIV: $106/share
DUK: We’d look for acceleration in AEPS CAGR after PNG close
- Dinner with CFO in NYC: Last night we were at a group diner with Steven K. Young, CFO of DUK.
- Piedmont Natural Gas (PNG) was a strategic acquisition: Few would disagree that DUK “paid-up” for PNG; however, we agree with DUK’s assertion that the acquisition was strategically necessary. From our perspective, this means DUK paid a good premium to get back into the gas business through such a desirable asset. We also believe DUK fully intends to add other assets to the gas business to lower the overall cost and accelerate growth of its AEPS overtime, which would make the PNG acquisition look more reasonable. Finally, without the PNG acquisition, we believe DUK would not have had an easy time re-entering the gas business, DUK would not have had a central or core business to build around, and it would not have had the ability to accelerate its CAGR in AEPS going forward.
- Accelerating CAGR in AEPS: The upshot is that we believe that DUK’s CAGR in AEPS would accelerate after the close of the PNG acquisition, which still seems to be expected by yearend 2016.
- Current guidance of 4%-6% CAGR in AEPS through 2020 may turn into something more like 6%-8%: