On Tuesday, BMO (TSX:BMO) Capital Markets sustained its positive outlook on Duke Energy (NYSE: NYSE:DUK) shares, increasing the price target to $112 from $109, while keeping an Outperform rating.
The adjustment followed Duke Energy's disclosure of a comprehensive settlement agreement filed with the Florida Public Service Commission (FPSC) as part of its proposed Multi-Year Rate Plan (MYRP), as detailed in an 8-K filing after markets closed.
The settlement is seen favorably by BMO Capital, as it is expected to support a significant revenue increase for Duke Energy. The agreement includes an aggregate revenue rise of approximately $403 million and $470 million when incorporating the retention of Investment Tax Credit (ITC)-related cash flow in 2027. This revenue boost represents about 55% to 64% of the company's revised request.
A key component of the settlement is the establishment of a higher Return on Equity (ROE) midpoint of 10.3%, with a range of 9.3% to 11.3%. This is a notable increase from previous figures and is accompanied by an equity ratio of 53%, which aligns with industry standards. The revised financial framework under the settlement is expected to benefit Duke Energy's financial position.
BMO Capital's maintained Outperform rating reflects the firm's confidence in Duke Energy's potential for above-average returns. The updated price target of $112 is based on a mark-to-market (MTM) valuation approach, which takes into account the current market conditions and the company's expected future cash flows and earnings.
Duke Energy's settlement with the FPSC and the subsequent financial adjustments present a positive development for the company's revenue prospects and investment profile. The increased price target by BMO Capital underscores the firm's anticipation of Duke Energy's continued performance and growth.
In other recent news, Duke Energy Florida has submitted a Settlement Agreement to the Florida Public Service Commission, proposing base rate increases for 2025 and 2026.
The agreement, pending approval, includes a stay-out on further base rate adjustments until the end of 2027, with revenue increments tied to solar investments recoverable through the Solar Base Rate Adjustment mechanism.
This proposed change follows on the heels of Duke Energy securing approval for a rate increase from the Public Service Commission of South Carolina, effective August 1, 2024, which will result in a one-time net pre-tax accounting charge estimated between $30 to $40 million in the second quarter of 2024.
Simultaneously, BMO Capital Markets has adjusted its outlook on Duke Energy, reducing the price target slightly to $109 from the previous $110 while maintaining an Outperform rating.
This adjustment follows an updated estimate for the company's second-quarter 2024 earnings, which anticipates earnings of $1.01 per share, up from $0.91 per share in the same quarter of the previous year.
Barclays (LON:BARC) Capital Inc. and BMO Capital Markets Corp. have given Duke Energy an overweight and outperform rating, respectively, with BMO raising its price target from $108 to $110. These are some of the recent developments that have taken place at Duke Energy.
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