Duke Energy Increasing Credit – Analyst Blog

Duke Energy Corporation (DUK) and its wholly owned subsidiary, Duke Energy Carolinas, have entered into a new four-year senior unsecured revolving credit facility with regional, community and minority-owned banks operating throughout the Duke Energy Carolinas service territory.

 

Duke Energy has got a commitment for a total of $200 million under the new credit facilities, which will be used for general corporate purposes including capital expenditures. The company projects 2010 capital and investment expenditures of approximately $5.2 billion. Management anticipates a need to issue approximately $1.7 billion of new debt to finance its capital expenditure programs in fiscal 2010.

 

Duke Energy has a strong balance sheet among its peers, with a low debt-to-capitalization of 42.4% at fiscal-end 2009 (Zacks industry average was 90.1%). The company continues to be a strong cash generator, with its annual operating cash flow of approximately $3.5 billion during fiscal 2009. The company closed fiscal 2009 with cash and cash equivalents of $1.5 billion, and a $3.14 billion credit facility. Total long-term debt stands at approximately $16.1 billion, with only $902 million slated to mature in the near term.

 

Duke Energy Carolinas owns nuclear, coal-fired, natural gas and hydroelectric generation. That diverse fuel mix provides approximately 19,000 megawatts of electricity capacity to approximately 2.4 million customers in a 22,000-square-mile service area of North Carolina and South Carolina.

 

Duke Energy is one of the largest electric power holding companies in the United States. Its regulated utility operations serve approximately 4 million customers located in five states in the Southeast and Midwest, representing a population of approximately 11 million. Its commercial power and international business segments own and operate diverse power generation assets in North America and Latin America, including a growing portfolio of renewable energy assets in the United States.

 

Duke Energy Corporation’s stable U.S. electricity and gas operations, spread over the five states of North Carolina, South Carolina, Indiana, Ohio and Kentucky, generate a relatively stable and growing earnings stream. Looking ahead, our bullish outlook for the company is supported by higher rates, a strong balance sheet, ongoing capital expansion projects and an above-industry-average dividend yield.

 

Duke Energy based on forward earnings estimates at present is trading at a discount to its peers such as FirstEnergy Corporation (FE), Pacific Gas & Electric Corporation (PCG), Public Service Enterprise Group Inc. (PEG) and Edison International (EIX).

 

However, the present unfavorable macro backdrop, fossil-fuel based generation assets, lower demand for electricity, foreign currency exchange volatility and pending regulatory cases continue to restrain valuation. Thus we maintain our market Neutral recommendation on the Zacks Rank #3 stock.