Year-to-date, the share
price of Duke Energy (DUK-$70.28) has outperformed
the S&P 500 Index by 180 basis points, posting a total return
of 8.31%. However, at current prices the stock looks fairly valued, based
on PE ratio, trading at a premium to other large-cap, regulated utilities,
such as The Southern Company (SO), American Electric Power
(AEP), and Consolidated Edison (ED).
What, therefore, could trigger an
earnings miss and pressure Duke Energy’s stock price and targeted dividend
payout ratio?
The unrecovered
investment on the Crystal River Unit 3 asset is approximately $1.64 billion,
which is equal to 70% of prevailing and agreed-upon ROE (calculated on the
prevailing cost of equity), according to terms of a settlement with the Florida
Public Service Commission (FPSC). In written correspondence, company spokesman
David Scanzoni confirmed that the company cannot begin to recoup its embedded
costs through future customer rate hikes until the billing cycle starting in
January 2017 (with collection accreting over a 20 year span). Additionally, $20
million listed as an offset (liability) in removal costs could prove too conservative,
as the approved SAFSTOR decommissioning strategy will take between 40 – 60
years to complete!
While the foregoing
reflects current estimates with respect to the retirement of the Florida
facility, there is significant risk and uncertainty, too, with respect to the
cost and recoverability of replacement power.
Continue Reading at
YCharts: The Myriad Risks Underlying Duke Energy's Dividend Yield
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