Power Forward with The Duke of Energy

Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Duke Energy (NYSE: DUK) provides electric and gas services in three regions of the United States. They have been in service for over 150 years, and after merging with Progress Energy in 2012 they became the largest electric power holding company in America. Duke supplies energy to over 7 million customers in the southeast and Midwest states. Their total coverage area is around 104,000 square miles. Here is a map of what the combined Duke and Progress markets came to form:

<img src="/media/images/user_15878/duke_progress_service_areas_duke_energy_194x250_large.jpg" />

Today, Duke Energy sports a market cap of over $48 billion, making them incredibly powerful in the electric space. On top of that, their assets total over $100 billion in value. Other large and notable electric companies include Southern Company (NYSE: SO), covering a large portion of the southeast, American Electric Power (NYSE: AEP), covering parts of 11 states, and PG&E (NYSE: PCG), covering most of California. These companies have very large market caps and asset values as well, but not quite on the level of Duke. The chart below shows the companies compared by market cap. Although Duke is much larger, all of these companies are very strong in their regions.

<img src="/media/images/user_15878/chartgo-3_large.png" />

Duke Energy ended trading Feb. 4 at $68.35. At this price, Duke is trading at about 21.5 times earnings and 15.7 times 2013 earnings. Their current price to earnings ratio is higher than that of Southern, American Electric, and PG&E, but their forward price to earnings is in the same ballpark. The chart below shows the companies' current price to earnings multiples and their forward price to earnings. Notice that although some have higher current P/E's, they all have favorable forward P/E's. This shows that the companies have strong growth and will continue to return value to their shareholders.

<img src="/media/images/user_15878/chartgo-1_1_large.png" />

Duke pays out a $3.06 dividend, or 4.40% annually. This represents a solid opportunity for investors looking to add yield to their portfolio. They have paid dividends for 86 consecutive years and have increased this dividend each year since 2007. When taking the financials into consideration, it is easy to say that the dividend is safe. The large yields of Southern, American Electric, and PG&E also pass the dividend safety test. Also, notice in the chart below that these four companies have very similar yields.

<img src="/media/images/user_15878/chartgo_2_large.png" />

Duke Energy is trading about 4% below its 52 week high reached on July 2. Since the beginning of 2013, the stock has been on a tear. Waiting for this one to pullback a point or two would be smart, but anywhere below $70 is still cheap. Duke Energy has the potential to trade above $80 in 2013 based on 18.5 times earnings. I am initiating an outperform on Duke on CAPS. Duke Energy, Southern Company, American Electric, and PG&E are all screaming BUYS, but Duke Energy is my favorite in the space.

<img src="/media/images/user_15878/screen-shot-2013-02-04-at-95620-pm_large.png" />


JoeySolitro1 has no position in any stocks mentioned. The Motley Fool recommends Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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