DUK

Considering an Investment in Duke Energy (DUK)? Read This!

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 19.0 and a P/B ratio of 1.48.

Duke Energy's PEG ratio is 2.47, 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.

The Company Has a Highly Leveraged Balance Sheet and a Declining EPS Growth 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's financial statements include several red flags such as slimmer gross margins than its peers, declining EPS growth, and a deteriorating pattern of cash flows. Additionally, the firm has a highly leveraged balance sheet. Duke Energy has weak revenue growth and a flat capital expenditure trend and weak operating margings with a stable trend.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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