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Market Price (8/4/2016): $85.24/share; ST-Target: $100/share; NIV: $110/share
DUK: One of the best low-risk investments in the industry
Sale of International is in final stages. Though dilutive in ST, we believe this decision may be necessary for DUK to invest in renewable energy and should prove to be value-add in the MT-to-LT. Ash basin issues are largely in rearview mirror, but still in consciousness of management. We believe DUK will make more transformative acquisitions on gas-side of business. Awaiting NC regulatory approval to close Piedmont; TN approval granted in 1Q16. Transaction likely to close by YE2016. Demographics picking-up momentum and now usage/customer is climbing too; we look for this to continue moving forward. Investments in renewables and gas-fired generation helps DUK move away from coal and is the right move. We expect DUK to achieve high end of its 4%-6% AEPS CAGR through 2020, if not exceeding it thru development of both organic natural gas projects and acquired natural gas businesses. We’re not excited about potential for industry moving towards cost-of-service gas programs. 2Q16 results were ahead of expectations, and we are tweaking our estimates accordingly. Raising ST-Target to $100.