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Market Price (5/9/2017): $82.11/share; ST-Target: $105/share; NIV: $148/share
But for warm winter 1Q17 would’ve been epic; Executing at high level
Disappointing 1Q17 results were due to moderate winter weather; otherwise it was a stellar quarter and would have clocked at least $1.17/share. So, we were not surprised that DUK didn’t raise its 2017 AEPS guidance, but we still believe DUK will meet or beat the high end. Target 8%-10% total shareholder return with 4%-6% coming from AEPS growth through 2021 seems conservative. 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 right move. We expect DUK to surpass high-end of its 4%-6% AEPS CAGR through 2021 thru development of both organic natural gas projects and acquired natural gas businesses. We believe another transformative gas-based acquisition is in the making within 12-18 months or by yearend 2018 that would have multiple benefits. Organic growth target for gas business is to increase its contribution in AEPS to 15% from 8% estimated for 2017. We believe this is a meaningless objective. DUK’s NOL position complicates analysis of tax rate cuts, but should be net positive.