We've been asking ourselves recently if the market has placed a fair valuation on Duke Energy. Let's dive into some of the fundamental values of this large-cap Industrials company to determine if there might be an opportunity here for value-minded investors.
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Duke Energy Corporation, together with its subsidiaries, operates as an energy company in the United States. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 20.49 and an average price to book (P/B) ratio of 3.78. In contrast, Duke Energy has a trailing 12 month P/E ratio of 19.1 and a P/B ratio of 1.48.
Duke Energy's PEG ratio is 2.45, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
A Deteriorating Pattern of Cash Flows With a Flat Trend:
| 2018-02-23 | 2019-02-28 | 2020-02-20 | 2021-02-25 | 2022-02-24 | 2023-02-27 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $23,565 | $24,521 | $25,079 | $23,366 | $24,621 | $28,768 |
| Gross Margins | 45.0% | 43.0% | 46.0% | 49.0% | 49.0% | 45.0% |
| Operating Margins | 25% | 21% | 23% | 24% | 24% | 22% |
| Net Margins | 13.0% | 11.0% | 15.0% | 6.0% | 16.0% | 9.0% |
| Net Income (MM) | $3,059 | $2,666 | $3,748 | $1,377 | $3,908 | $2,550 |
| Net Interest Expense (MM) | -$1,986 | -$2,094 | -$2,204 | -$2,097 | -$2,207 | -$2,439 |
| Depreciation & Amort. (MM) | -$4,046 | -$4,696 | -$5,176 | -$5,486 | -$5,663 | -$5,843 |
| Earnings Per Share | $4.37 | $3.77 | $5.09 | $1.72 | $4.94 | $3.17 |
| EPS Growth | n/a | -13.73% | 35.01% | -66.21% | 187.21% | -35.83% |
| Diluted Shares (MM) | 700 | 708 | 729 | 738 | 769 | 770 |
| Free Cash Flow (MM) | $14,676 | $16,575 | $19,331 | $18,763 | $18,005 | $17,294 |
| Capital Expenditures (MM) | -$8,052 | -$9,389 | -$11,122 | -$9,907 | -$9,715 | -$11,367 |
| Net Current Assets (MM) | -$87,724 | -$91,844 | -$101,724 | -$104,522 | -$108,367 | -$113,002 |
| Long Term Debt (MM) | $49,035 | $51,123 | $54,985 | $55,625 | $60,448 | $67,061 |
| Net Debt / EBITDA | 5.45 | 5.82 | 5.6 | 5.67 | 5.81 | 6.09 |
Duke Energy has slimmer gross margins than its peers, a deteriorating pattern of cash flows, and a highly leveraged balance sheet. On the other hand, the company has positive EPS growth working in its favor. Furthermore, Duke Energy has weak revenue growth and a flat capital expenditure trend and weak operating margings with a stable trend.
