Duke Energy (NYSE:DUK) is one of the largest electric utilities in the U.S. along with American Electric Power Company (NYSE:AEP), Exelon Energy Corp, Allegheny Energy (NYSE:AYE) and Progress Energy (NYSE:PGN). Duke Energy has approximately 35,000 megawatts of electric generating capacity in the Carolinas and the Midwest, as well as natural gas distribution services in Ohio and Kentucky.
Even though the firm operates in international markets, the majority of the value for the company comes from the U.S. Franchised Electric & Gas segment. This segment alone contributes nearly 80% of our $17.53 stock value for Duke Energy, which stands roughly in line with market value. Its Commercial Power business contributes around 8% to its stock price, with the International Energy division contributing an additional 12%.
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Firm Results in 2010
Duke Energy reported strong fourth quarter and full year results earlier last month. For its U.S. Franchised Electric & Gas and Commercial Power divisions, year-on-year fourth quarter revenues increased by 12% and 20% respectively, though revenues for International Energy decreased by 16%. For the full fiscal year 2010, revenues for U.S. Franchised Electric & Gas increased by 12% while those for Commercial Power and International Energy increased by 16% and 4% respectively. The company’s net revenues were up by 12% to nearly $14.3 billion for the year. The company also improved profit margins. The EBITDA margin for U.S. Franchised Electric & Gas increased by nearly 3%, while those for International Energy increased by 9%. However, those for Commercial Power decreased by around 11%, largely due to increasing competition.
As reported by Duke Energy, the U.S. Franchised Electric & Gas results were favorably impacted by pricing principally caused by rate adjustments in the Carolinas and favorable weather conditions, but were partially offset by higher operation and maintenance expenses. While favorable pricing in Brazil drove those for International Energy, partially offset by unfavorable results in Central America. ((Duke Energy Reports Strong 2010 Results))
New Projects Support Growth in 2011
Going forward, Duke Energy is planning to spend around $8 to $9 billion on new capital construction over the next two years, primarily for new nuclear generation facilities, which is a part of its decarbonization strategy. 
In addition to this, Duke Energy has agreed to buy a 14 megawatt Blue Wing Solar Project in Germany, the first commercial solar power project to be owned and operated by the company. The whole output from the solar farm as well as associated carbon credits will be sold to San Antonio based CPS Energy, in a 30-year power purchase agreement deal. ((Duke Energy unit to buy 14 megawatt solar project))
Overall, we believe that Duke Energy is well placed to deliver strong growth over the next few years, driven by strong results from its U.S. Franchised Electric & Gas division in particular. We estimate that the revenue per MWh for this division increased from around $64 in 2005 to nearly $70 in 2009. In 2010, we estimate it increased by another 5%.
Going forward, we estimate revenue per MWh to reach around $90 by the end of our forecast period, growing at an average annual growth rate of around 3%. However, if it increases at an average annual growth rate 150 basis points higher than our current forecasts, reaching around $100 by the end of our forecast period, it would mean an upside of around 17% to our current price estimate for Duke Energy’s stock.Notes: