Duke Energy Corp (NYSE:DUK) — This is the largest electric power holding company in the United States, and also one of the most consistently profitable utilities in the country. Revenue has grown steadily from $12.7 million in 2009 to $23.4 million in 2014.
S&P Capital IQ recently raised its opinion on DUK stock to “hold” from “sell,” encouraged by its business in the Southeast region and the planned sale of the less profitable assets in the Midwest. Its analysts estimate operating earnings will increase 4.4% in 2015 to $4.75 per share, excluding charges, and another 4.8% in 2016 to $4.98.
In my opinion, Capital IQ’s price target of $79 is too modest since it is just 16.6 times its 2015 EPS estimate. Also, Duke’s 4.05% dividend yield is higher than the Dow Jones Utility Average’s yield of 3.37% (see Tuesday’s Daily Market Outlook). Thus, DUK stock looks undervalued on both a P/E and dividend basis.
The bull market channel and its support line connect to the September 2013 low below $65, and the resistance line of the channel connects to the high of almost $80 made on Friday.
The decline from the Jan. 28 high at $89.97 was warranted since the advance of over 40% in less than 17 months clearly resulted in an overbought situation. But the subsequent pullback to its long-term bull market channel offers an excellent opportunity to buy this stellar performer at a reasonable P/E ratio, the most effective way to measure the true value of most stocks.
Buy DUK stock under $78 with a seven-month trading target of $84 for a total return of more than 10%, including three dividend payments. It should also be considered as a long-term, high-quality investment, but for investors seeking a reasonable return with modest risk, DUK stock could fit their objective nicely for an intermediate-term trade.
