Argus Sees 'Unexciting' Return Potential For Duke Energy

Argus maintained its Hold rating on Duke Energy Corp DUK as it sees an "unexciting total return potential" over the next 12 months despite solid fundamentals and favorable regulatory environment.

The brokerage cut its 2016 EPS estimate to $4.60 from $4.70 as difficult hydroelectric conditions in Brazil and forex headwinds would pressure international segment into early 2017. However, it maintained 2017 EPS estimate of $4.75.

In addition, Argus maintained its long-term Buy rating on expectations of above-average rate base growth over the next several years, in addition to improving balance sheet and well-managed nuclear-generating assets.

"Duke is now benefiting from positive changes in its regulated electric utility rate structures, an improving economy in its Carolina and Florida service areas, and moderate kilowatt-hour sales growth. In our view, these factors make DUK shares a sound long-term holding for investors seeking moderate share price appreciation and a solid dividend," analyst Gary Hovis wrote in a note.

Hovis views the current annualized payout of $3.42 per share as "secure" and still sees annual dividend growth of 2.5 -3 percent over the next several years. The current yield is about 4.3 percent.

"In our view, these factors should combine to generate total returns to shareholders of 5%-6% annually over the next 4-5 years," Hovis added.