DUK 1Q2018 Earnings (05/10/2018): DUK presents good buying opportunity but after $2.0B equity issue

Reported 1Q18 AEPS of $1.28 vs. our $1.08 and consensus’ $1.14. But, adjusting for good weather DUK would have reported $1.12
DUK completed some $1.65B in new equity for 2018 and expects complete $350MM by yearend, which we’ve modeled
Macro-economic indicators are turning up and demographics gaining; we look for these trends to continue
Investments in renewables and gas-fired generation helps DUK move away from coal and is right move
We believe DUK is on track to meet its 4%-6% AEPS CAGR through 2022 thru development of both organic natural gas projects and acquired natural gas businesses, as well as electric infrastructure projects
We believe another transformative gas-based acquisition is in the making by yearend 2020
We believe DUK presents buying opportunity driven by strong capital investment program, strengthening performance and yield

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DUK 4Q2017 Earnings (2/20/2018): Presents good buying opportunity but after $2.0B equity issue

Reported 4Q17 AEPS of $0.94 vs. our $0.88 and consensus’ $0.92. But, adjusting for good weather DUK would have reported $0.86.
DUK announced it would issue $2B in new equity for 2018, which we’ve modeled.
Introduced 2018 AEPS guidance of $4.55-$4.85, in-line with our expectations.
Extended 4%-6% AEPS CAGR through 2022 as expected and continues to target 8%-10% total shareholder.
Macro-economic indicators are turning up and demographics gaining; we look for these trends to continue.
We believe DUK is on track to meet its 4%-6% AEPS CAGR through 2022 thru development of both organic natural gas projects and acquired natural gas businesses, as well as electric infrastructure projects.
However, we feel DUK would be under pressure until $2.0B equity issue is done. But once complete, we believe DUK presents buying opportunity driven by strong capital investment program, strengthening performance and yield

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2018 Industry Update: Economic growth should favor commodities-driven businesses in 2018

Warmer than normal winter:
Weak gas prices:
However, 4Q2017 and 1Q2018 power gross profit could be better than expectations:
Similarly, we’d expect natural gas infrastructure businesses to perform well for 4Q2017 and 1Q2018:
We expect economic growth to surpass 4% for 2018:
Strong economic performance should lead to strong power sector performance:
Commensurately, we expect natural gas infrastructure businesses to perform well:
Adjusted for seasonality, we expect natural gas prices to creep up throughout 2018 and, given normal weather, we’d expect natural gas prices to average at or just below $3.50 for 2018 with an exit price of some $3.65-$3.75:
Conclusion: Going into 2018, we believe that natural gas prices will stage a moderate recovery, but power margins should do better benefiting from accelerating economic activity. Individually, we continue to like… . However, the real star may be … . Among the utility names, we like … due to their growth prospects. We also look for … to outperform as … .

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GOP Tax Bill is win for utilities, power, infrastructure, and customers

GOP Tax Bill (GOPTB) looks to be positive for industries and companies in our coverage universe
Key aspects of GOPTB that affect our coverage industries and companies include, but not limited to:
21% corporate tax rate would be expected to reduce deferred income tax liability by some 40%
Interest expense deductibility capped at 30% of EBITDA for 2018-2021 and to 30% of EBIT after
100% investment deduction, except for utilities that would continue to deduct 100% interest
Preservation of existing investment tax credits (ITC) and production tax credits (PTC)
Repatriation of profits tax at 15.5% for cash and equivalent and 8% for non-liquid assets
Base-erosion & Anti-abuse Tax (BEAT) not impactful: If payments to foreign affiliates are 3% or more of a large company’s tax deductions then BEAT is imposed. We do not view this as relevant to companies that we cover, given 100% of PTC would be allowed to offset up to 80% of BEAT
AES Corp. faces large disqualification of interest expense deductibility but given its $3.7B in NOLs, we do not believe this to be an immediate issue; AES has time to remedy the situation:
NRG Energy shouldn’t have any issues with interest expense deductibility:
Exelon Corp. isn’t expected to have any problems with interest expense deductibility:
Cheniere Energy, oddly enough, shouldn’t have any problems with interest expense deductibility:
BKH, CNP, DUK, EIX, PCG, PNM, SRE should not have any issues with interest expense deductibility but may be able to use 100% investment deductibility to create win-win:
We note that the inability to deduct interest expense is limited to $0.21/$1 of lost deductibility
Loss of interest expense deduction could lead to some unexpected corporate behavior

Conclusion: Net effect of GOPTB looks to be positive, more so if utility holding companies are permitted to use non-utility subs to take advantage of the 100% capital investment deduction

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DUK 3Q2017: Absent weather effects, DUK is performing to expectations

Reported $1.59 AEPS vs. our $1.76 and consensus’ $1.63. But, adjusting for bad weather including hurricane Irma, DUK would’ve come in at $1.73.
Due to subpar 3Q17 results, we lowered our 4Q17 expectations to fit narrowed AEPS guidance of $4.50-$4.60 from $4.50-$4.70
Macro-economic indicators are turning up and demographics picking-up momentum and now usage/customer is climbing too; we look for these trends to continue
We believe DUK is on track to meet its 4%-6% AEPS CAGR through 2021 thru development of both organic natural gas projects and acquired natural gas businesses, as well as electric infrastructure projects
DUK continues to use regulatory filings to drive growth
We believe another transformative gas-based acquisition is in the making within 12-18 months or by yearend 2018

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DUK 2Q2017 Earnings: DUK isn’t resting on its laurels but working hard to get next gold medal

We overhauled the model to more intricately incorporate Piedmont, which had the benefit of increasing our NIV/Share to $159/share from $148/share. We are increasing our ST-Target to $110/share from $105/share. We still believe DUK will meet or beat the high end of its 2017 AEPS guidance. 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 up. 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. DUK continues to use regulatory filings to drive growth. 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 meaningless. We believe DUK will achieve $850MM cost savings over next 10 years.

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DUK 1Q2017 Earnings Note

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.

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DUK 4Q2016 Earnings Note

Poised for growth in both earnings and dividend; strong strategy ||

We were disappointed that DUK didn’t raise its 2017 AEPS guidance, but doesn’t surprise us that DUK’s being conservative. Target 8%-10% total shareholder return with 4%-6% coming from AEPS growth through 2021 seems conservative. We believe DUK will make more transformative acquisitions on gas-side of business. 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 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’re not excited about potential for industry moving towards cost-of-service gas programs. 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.

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DUK 3Q2016 Earnings Note

Setting the stage for stronger growth profile ||

Sale of International completed for $2.4B ($1.2B for Brazil and $1.2B for rest of Lat Am); $1.7B-$1.9B net cash repatriation expected to pay for more growth projects, particularly on the gas-side. Sale price was as expected. Closing expected to occur 1Q2017 for Brazil assets and 2Q2017 for Rest of Lat Am. PNG acquisition closed October 2016 for $5B. So, we expect DUK to slightly pump-up its CAGR with next guidance in Feb. 2017. 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. 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 surpass high-end of its 4%-6% AEPS CAGR through 2020 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. We believe another transformative gas-based acquisition is in the making within a year or two that would have multiple benefits.

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DUK sells its international assets for $2.4B

We estimated that the sales of the international assets would generate some $2.9B in cash proceeds, but DUK sold it for $2.4B
DUK sold its Brazilian (~2.1GW) assets for $1.2B (~$571/KW) to the Chinese company China Three Gorges Corporation, which is the owner/operator of the world’s largest dam
The balance of the assets in Peru, Chile, Ecuador, Guatemala, El Salvador, and Argentina were sold to I Squared Capital for $1.2B
We believe that these are reasonable prices
DUK is pledged to repatriate the cash after paying-down debt and appropriate taxes to all of the appropriate jurisdictions

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