On Monday, BMO Capital Markets updated its outlook on Duke Energy Corporation (NYSE:DUK), increasing the stock's price target to $110 from $108, while retaining an Outperform rating. The adjustment follows a settlement agreement filed with the Public Service Commission of South Carolina (PSCSC) by Duke Energy Carolinas (DEC) and various stakeholders, including the Office of Regulatory Staff, concerning the company's ongoing electric rate case.
The settlement, if approved, would result in DEC implementing a net base rate increase of $240 million, which is less than the originally requested $323.1 million. The proposed agreement also outlines a rate base of $7.5 billion and sets the return on equity (ROE) and equity layer at 9.94% and 51.21%, respectively. This represents a change from the currently authorized rates of 9.5% ROE and 53.0% equity layer.
The analyst from BMO Capital Markets noted that the updated stock price target reflects the mark-to-market of peer group multiples. The firm's continued positive stance on Duke Energy is supported by the terms of the proposed settlement, which are seen as favorable for the company's financial outlook.
Duke Energy, headquartered in Charlotte, North Carolina, is one of the largest energy holding companies in the United States. Its electric utilities serve approximately 7.9 million customers in the Southeast and Midwest, and it has a growing portfolio of natural gas and renewable energy assets.
The potential approval of the settlement by the PSCSC would pave the way for the adjusted rates and financial structure as outlined in the agreement. The market responded positively to the news, with Duke Energy shares showing an uptick in response to the revised price target and maintained Outperform rating from BMO Capital Markets.
InvestingPro Insights
As Duke Energy Corporation (NYSE:DUK) navigates through its rate case settlement, insights from InvestingPro could provide investors with additional context to gauge the company's financial health and market position.
With a market capitalization of $79.83 billion and a Price/Earnings (P/E) ratio of 26.1, Duke Energy trades at a valuation that commands attention. Notably, the company's P/E ratio adjusted for the last twelve months as of Q1 2024 stands at 17.96, reflecting investor expectations for near-term earnings growth.
An InvestingPro Tip highlights Duke Energy's commendable track record of raising its dividend for 16 consecutive years, signaling a potential draw for income-focused investors. Moreover, the company's dividend yield is currently at 3.95%, coupled with a dividend growth of 1.99% over the last twelve months as of Q1 2024, underscoring its reliability in returning value to shareholders. This is particularly relevant given the analyst prediction that Duke Energy will maintain profitability this year.
InvestingPro also notes that Duke Energy is trading near its 52-week high, with the price representing 99.65% of this peak. While some investors might see this as a sign of stability, others may exercise caution, considering the stock's current position.
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