JPMorgan’s Christopher Turnure has downgraded the rating on Duke Energy Corp DUK from Overweight to Neutral, while lowering the price target from $82 to $81.
Turnure explained that the downgrade was based on a “disappointing core business outlook,” “as growth now appears to need more time to play out than we had anticipated.”
The company revised its 2016 and long-term EPS guidance on February 18, reflecting disappointing growth from its core utility and commercial segments.
Although the direction of the revision was not surprising, the guidance was lower than expected, despite expectations of major capital deployment over the next three years, zero cost inflation and high customer count growth.
According to the JPMorgan report, “The base case scenario now requires internal equity of $700MM in 2018-20, excluding the $500-750 this year required to maintain credit ratings for the Piedmont Natural Gas Company, Inc. PNY deal.”
The analyst also noted that Duke Energy’s cash and non-cash adjustments to its GAAP net income alone added up to negative $875 million over the past two years, excluding discontinued operations.
This, combined with higher spending and slow growth, has pressured the company’s growth outlook, Turnure said.
“A successful international sale may help fund high capex and reduce debt issuances, but does not appear to be able to offset the PNY raise and much of the business’s value was already being extracted thru the multi-year repatriation,” the report added.
The EPS estimates for 2017 and 2018 have been reduced by $0.11 and $0.15, respectively.
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