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D or DUK: Which Utility Stock Should You Hold on to in 2021?

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The Zacks Utility – Electric Power industry stocks supply uninterrupted electricity to their millions of customers across the United States even amid the pandemic or a very active hurricane season. The regulated nature of operations and the companies’ focus on domestic operations make utility stocks one of the safest investment bets.

Utilities require huge capital investments to build power generation plants, strengthen their transmission and distribution lines, and use modern technologies to provide uninterrupted power supply even during extreme weather conditions, thereby increasing the resilience of their services. Also, with the world moving to clean and sustainable energy, utilities are spending huge amounts of money on clean renewable sources to generate electricity.

Further, the companies announced long-term plans to go carbon neutral or lower emissions, substantially. The usage of new technology and development of large-scale battery storage projects are making alternate sources of energy more reliable and popular among the electricity producers.

When internal sources of funds are not sufficient, companies turn to borrowings and the currently low interest rates enable the operators to procure necessary capital investments at reasonable rates. Moreover, the industry player’s ability to pay regular dividends makes them more attractive than bonds, given that the prevailing interest rates are low.

Amid such favorable trends, we run a comparative analysis of two prominent electric power utilities, namely Dominion Energy, Inc. (D - Free Report) and Duke Energy Corporation (DUK - Free Report) to determine which stock is better poised right now.

Both stocks currently carry a Zacks Rank #3 (Hold). Dominion Energy and Duke Energy have a market capitalization of $60.34 billion and $76.62 billion, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estimate Movement

While the Zacks Consensus Estimate for Dominion Energy’s 2021 earnings per share has moved 0.26% north to $3.86, the same for Duke Energy has dipped 0.77% to $5.16 in the past 60 days.

Earnings Surprise Trend & Long-Term Growth

Dominion Energy delivered a trailing four-quarter surprise of 3.84%, on average. Its long-term (three to five years) earnings growth is projected at 6.72%.

Duke Energy delivered a trailing four-quarter surprise of 2.73%, on average. Its long-term earnings growth rate is pegged at 5.23%.

Return on Equity (ROE)

ROE is the measure of a company’s efficiency in utilizing its shareholders’ funds. Dominion Energy and Duke Energy have a trailing 12-month ROE of 12.39% and 8.68%, respectively. The industry’s ROE for the same period came in at 8.98%.

Debt to Capital

The long-term debt-to-capital ratio is a good indicator of a company’s financial position and shows how much debt is used in running its business. Dominion Energy has a long-term debt-to-capital of 55.15%, higher than Duke Energy’s 52.45%. The utility electric power industry’s average long-term debt-to-capital is 49.44%.

Times interest earned (TIE) ratio of Dominion Energy at the end of first-quarter 2021 was 4.1, is better than 2 recorded at the end of fourth-quarter 2020. The same for Duke Energy was stable at 1.4. A greater than one TIE ratio reflects the companies’ financial strength and their ability to meet debt obligations.

Investment & Emission-Reduction Goal

Dominion Energy plans to invest $32 billion in its existing infrastructure while Duke Energy intends to spend $59 billion on overall growth projects during the 2021-2025 time period.

Duke Energy aims to reach its target of 55-75% reduction in carbon emissions through 2035 and become net-carbon neutral from electric generation by 2050. The company already lowered its carbon emissions in 2020 by more than 40% from its 2005 baseline. Also, it pledged to cut methane emissions to net zero by 2030 for its natural gas distribution companies.

Dominion Energy aims to cut emissions by 70-80% within 2035 from the 2005 levels, and attain net-zero carbon and methane emissions from its electric generation and natural gas infrastructure by 2050 from its 2005 levels. At 2019 end, the utility had trimmed carbon emissions from its electric generating units by more than 55% since its 2005 baseline and also reduced methane emissions from natural gas infrastructure operations by 25% since 2010 levels.

Price Movement

In the past six months, shares of Dominion Energy have gained 1.8% while the Duke Energy stock has rallied 11.2%. The industry has recorded 3.2% growth in the said period.

Six Months Price Performance

Zacks Investment ResearchImage Source: Zacks Investment Research


Both utilities seem a promising choice to be retained in investors’ portfolio for the upcoming year. Also, their capital budgets are reserved for more clean renewable sources, strengthening and expanding their infrastructure to increase the reliability of their services as well as lowering emissions. However, Dominion Energy looks better positioned for 2021 even though it is using more debts than Duke Energy to fund its business.

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In-Depth Zacks Research for the Tickers Above

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Duke Energy Corporation (DUK) - free report >>

Dominion Energy Inc. (D) - free report >>