Jefferies Raises PT on Duke Energy (DUK) to $19.50; Sees EBIT Increase, Fully-Funded CapEx Following Merger

Jefferies issues comments on Duke Energy (NYSE: DUK) on its impending merger with Progress Energy (NYSE: PGN). The firm increased its price target from $18.50 to $19.50, maintaining a Hold on the shares.

Following the merger, Jefferies expects, "that utility EBIT will increase from 77% to 85% of adjusted consolidated EBIT in 2010 and to 87% in 2014." Additionally, the firm sees Ohio ESP and Edwardsport IGCC issues being resolved in the near-term.

Jefferies also sees the capital spending program being fully funded by internally generated cash and debt issues, and not require new equity through Jefferies' forecast period.

Duke currently has an annual dividend of $1.00, yielding 5 percent. Following the close of the merger, Duke expects to continue to grow the dividend at a slower rate than growth in adjusted earnings EPS, which is targeted at 4-6%. The company’s current dividend payout ratio of 73% is just above its long-term targeted level of 65-70%

Fiscal 2011 and 2012 earnings estimates remain flat, while fiscal 2013 earnings move from $1.42 to $1.45. Jefferies initiated fiscal 2014 earnings at $1.57 per share, equating to 4.7 CAGR.

Duke is down about 0.3 percent Wednesday.

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