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Duke Energy Signs Agreement to Repurchase $1.5B of Shares - Analyst Blog

Zacks Equity Research
Updated

Duke Energy Corporation DUK has entered into an agreement to repurchase about $1.5 billion of its common stock from Goldman, Sachs & Co. and JPMorgan Chase Bank. The buyback will be made under an accelerated share repurchase (“ASR”) program.

As per the agreement, Duke Energy will make a payment of $750 million to each of the financial institutions, Goldman Sachs and JPMorgan, and receive an initial delivery of about 8.3 million shares from each bank. This represents about 85% of the total shares of the company’s common stock, which is expected to be repurchased under the ASR program. The exact number of the shares to be repurchased will be determined by the average share prices during the transaction period, less a discount and subject to adjustments. The transaction is expected to close by Sep, 2015-end.

The company stated its intention to repurchase shares on Apr 2, 2015, when it declared the completion of sale of its non-regulated Midwest Commercial Generation business to Dynegy Inc.

It is worth noting that the company’s shares have gained about 1.6% since Apr 2, closing the trading session at $78.24 on Monday.

The company had also stated its plan to use the sale proceeds to initiate a balanced recapitalization of long-term debt and common stock. Duke Energy had mentioned that it would be focused on maintaining strong financials as well as adding value to shareholders through immediate return of capital to shareholders.
 
Of the $2.8 billion generated from the sale, the company has used $1.5 billion for share repurchases under the ASR program. Duke Energy intends to use the remaining cash proceeds to pay its debts and fund its capital expenditure in 2015. It must be noted that the company plans to make capital investment worth $7.4 billion in 2015.

Duke Energy was able to achieve its targeted earnings for 2014 on account of its investments in various growth projects. The company will likely achieve its targeted earnings growth of 4% to 6% through 2017 on account of its systematic capital investment program and expansion strategies. Moreover, focus on maintaining a strong balance sheet position and efforts on maximizing shareholder value will serve it well over the long term.

Duke Energy currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include NextEra Energy, Inc. NEE, DTE Energy Company DTE and Public Service Enterprise Group Inc. PEG, each holding a Zacks Rank #2 (Buy).
 


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