Duke Energy: Goldman Sachs Turns Bearish On Valuation, Capital, EPS Worries

Duke Energy Corp DUK shares have below-average total return potential – 7 percent – compared to an average of 16 percent in the stock's peer group, according to Goldman Sachs.

The Analyst

Analyst Michael Lapides downgraded shares of Duke Energy from Neutral to Sell and lowered the price target from $84 to $78.

The Thesis

Triple concerns — namely valuation, estimated future equity needs arising from high leverage levels and earnings estimates that are 4-7 percent below the consensus — could weigh down Duke Energy shares, Lapides said in a Wednesday note.

As of now, the company plans to issue about $2 billion worth of equity in 2018 to improve its balance sheet, the analyst said.

Between 2018 and 2020, Goldman projects that Duke Energy will issue roughly $5.5 billion in total new common equity in order to improve FFO/debt levels to nearly 13 percent and to keep net debt/EBITDA metrics closer to peer group averages.

"We expect equity financing needs to remain an overhang and therefore weigh on DUK's P/E multiple — driving our target multiple 8-percent below our baseline for regulated utilities," the analyst said.

The equity issuance will also weigh down on earnings, Lapides said; Goldman lowered its EPS estimates for 2018-2020. The firm sees risks to multiyear EPS growth rates and to consensus estimates.

The Price Action

Duke Energy shares were down about 6.6 percent over the past year through Wednesday. The stock was trading up slightly after the opening bell Thursday. 

The stock 

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