DUK Duke Energy
Solid regulated compounder, but 1.75x book already prices the data-center capex boom; modestly overvalued.
The story
Duke Energy is a regulated utility franchise in the Carolinas, Florida and the Midwest, with a capex plan of roughly $95-105B that drives rate-base growth of about 7-8%, much of it from data-center load. It earns close to its allowed returns of about 9.5-10.5%, and trailing ROE is 10.1%. The balance sheet carries heavy leverage, with holdco debt and FFO/debt near downgrade thresholds. Funding the buildout needs steady equity issuance, which dilutes per-share book growth. The stock trades at about 1.75x book, so the market is already paying for the regulated growth runway.
Normalized ROE is set slightly below the blended allowed return to reflect regulatory lag and storm-cost drag. Book growth in year 1 tracks rate-base expansion, net of equity issuance, at about 6%. Terminal growth of 4% stays below the 5.29% risk-free rate, and a beta of 0.55 matches the regulated-utility anchor, giving a cost of equity of about 7.8%.
Value drivers
| Return on equity (normalized) | 9.8% |
| Book-value growth (Y1) | 6.0% |
| Terminal book growth | 4.0% |
| Beta | 0.55 |
| Failure probability | 1.0% |
| Cost of equity | 7.8% |
Valuation bridge
| PV of excess returns | 8.70B |
| PV of terminal excess | 21.14B |
| Equity value | 79.91B |
| ÷ shares → per share | $102.49 |
News
bearish -0.40 · 8 articles
- Southern or Duke: Which Utility Dividend Holds Up Against the Data Center Buildout
- 3 Dividend Growth Stocks That Have Recently Hit New 52-Week Lows
- How to Build a $6,850 Monthly Paycheck From Dividends
- What Is Duke Energy (DUK) Changing With Joyce Mullen And Great Falls?
- Duke Energy (DUK) Hits a 52-Week Low as the 30-Year Treasury Reaches a 2004 High
- Why Dominion Energy Halted Dividend Growth Despite Strong Operating Performance
- VST Keeps Writing Checks To Its Shareholders
- Bond Market Collapse Sends Yields to Decades-Old Highs. Dividend Stocks Are Most at Risk.
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 50.87B | 9.8% | 1.03B | 959.15M |
| 2 | 53.92B | 9.8% | 1.10B | 943.42M |
| 3 | 57.04B | 9.8% | 1.16B | 925.99M |
| 4 | 60.21B | 9.8% | 1.22B | 906.98M |
| 5 | 63.42B | 9.8% | 1.29B | 886.49M |
| 6 | 66.66B | 9.8% | 1.35B | 864.64M |
| 7 | 69.92B | 9.8% | 1.42B | 841.54M |
| 8 | 73.18B | 9.8% | 1.49B | 817.32M |
| 9 | 76.43B | 9.8% | 1.55B | 792.11M |
| 10 | 79.66B | 9.8% | 1.62B | 766.05M |
Key risks
- Regulatory lag or lower allowed ROEs in North Carolina, South Carolina or Florida rate cases compress the spread over cost of equity
- Higher-for-longer rates raise cost of equity and financing costs, and could force larger equity issuance for the capex plan
- Data-center load fails to materialize or customer affordability pushback leads to stranded or disallowed capex, plus hurricane cost-recovery risk in Florida and the Carolinas
Catalysts
- Constructive rate-case outcomes and multi-year rate plans that lock in ROEs near 10% with reduced lag
- Signed large-load data-center contracts that turn the capex plan into rate base with lower customer-bill risk