Bernstein Upgrades Duke Energy On Accelerating Growth In Core

In a report published Monday, Bernstein analyst Hugh Wynne upgraded the rating on Duke Energy Corp. DUK from Market Perform to Outperform, while raising the price target from $81 to $86. "Over the last twelve months, Duke has repositioned its business around its core regulated segment by selling its competitive Midwest fleet and repatriating cash from its international business. These actions reduced shareholder risk and improved the line of sight to future earnings and dividends," Wynne explained. Apart from Ohio, the regulation quality in the states that Duke Energy operates in is considered to be "constructive," with the quality of regulation being extremely constructive in three of the states. The analyst expects the company's regulated rate base to see accelerated growth during 2015-2019 that is significantly above the industry average. "While Duke plans to invest heavily in regulated rate base over the next five years, management does not anticipate filing a rate case with any of its state utility commissions until 2018 at the earliest," the Bernstein report stated. The analyst expects the primary EPS growth drivers for the company, during 2015-2017, to include "(i) growth in retail and wholesale electricity sales, (ii) capital investment projects in Florida, Ohio and Indiana that are subject to rider recovery, (iii) investment in FERC regulated transmission assets, and (iv) the repurchase of shares with the proceeds from the sale of Duke's Midwest generation assets." Duke Energy does not intend to issue equity through 2017, given the sale of its Midwest generation fleet for $2.8 billion and the potential repatriation of $1.2 billion in 2015 from the company's international business.