Duke Energy & NextEra Down 20%. Which Is A Better Buy?

by Trefis Team
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While utility stocks are generally viewed as defensive bets through economic crises, the sector has not been spared through the Coronavirus related sell-off. Duke Energy stock (NYSE:DUK) is down by about -19.8% compared to -18.2% for NextEra Energy (NYSE:NEE) since early February, after the WHO declared a global health emergency relating to the Coronavirus. The decline is likely to be due to a growing debt load across the industry and some concerns that industrial demand could take a hit through a recession.

Our analysis Duke Energy Or NextEra: Which Is The Better Defensive Bet? compares the stock price performance and fundamentals of the two companies over the last few years. Parts of the analysis are summarized below.

While both companies have posted similar levels of revenue growth over the last few years (2.2% to 2.4% CAGR), Duke’s GAAP EPS expanded at a CAGR of 14% between 2014-19 while NextEra’s EPS has grown by 6% over the same period.  Duke’s P/E based on 2019 earnings has declined from 18x in 2019 to 15x currently, while NextEra’s P/E has declined from 31x to 25x. This may seem like a buying opportunity for both stocks, as revenues and margins are likely to hold up reasonably well in the current environment.

While industrial demand for power could soften, this could be offset by an increase in residential consumption as people spend more time at home. Between the two companies, Duke looks like the better bet at current levels, due to its lower valuation multiple and also due to the fact that its stock has declined more than NextEra’s through the crisis. That said, NextEra could post better growth over the long run, considering its renewable energy assets, which are among the largest in the world and its focus on the fast-growing and population-dense South Florida area.

Coronavirus Crisis stock performance

  • Since early February, shortly after the WHO declared a global health emergency, Duke Energy stock has moved -19.8% compared to -18.2% for NextEra Energy.

Historical Performance

  • Duke Energy stock went from $32.75 at the end of 2009 to $90.33 at the end of 2019, representing a change of 175.8%.
  • During the same time period, NextEra Energy went from $38.60 to $240.90 representing a change of 524.1%.
  • This implies that Duke Energy stock grew at 0.3x the rate of NextEra Energy

ANALYSIS: Fundamental performance over the last 5 years and valuation

P/E Ratio

  • Based on trailing 2019 P/E ratios, DUK stock looks relatively cheap compared to prior years and cheap compared to NextEra Energy.
  • Duke Energy 2019 trailing P/E ratio of 18x was about 0.6x NextEra’s P/E multiple of 31x.

Historical Revenue Growth:

  • Duke Energy 2014-19 annualized revenue growth of 2.2% is almost in line with NextEra Energy’s revenue growth of 2.4% over the same period.

Historical EPS Growth:

  • Duke Energy 2014-19 annualized GAAP EPS growth of about 14% is over 2x NextEra’s growth of about 6%.

Total Debt Comparisons: 

  • Duke Energy Total Debt has increased from $50.4 billion to $61.3 billion between 2016 and 2019. In comparison, Total Debt for NextEra Energy has risen from $30.4 billion to $40.1 billion over the same period.

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