American Electric Power Company Inc (AEP), Duke Energy Corp (DUK)- US Coal Utilities: Effects of New Limitations

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Duke Energy: Diversification is king

Duke Energy Corp (NYSE:DUK) is an energy company that serves 7.2 million electric retail customers located in six states in the Southeast and Midwest of the United States. This utility has a diversified portfolio for its Midwest generation mix: 50% from coal, 47% from natural gas, and 3% from oil. This is an excellent way to diversify risks from future regulations and could in fact benefit from the US shale play expansion and its low prices to boost profit margins. A transition for Duke Energy Corp (NYSE:DUK) would not be as harsh as for its other peers analyzed in this article. Moreover, Duke Energy Corp (NYSE:DUK) operates in Argentina, Brazil, Chile, Ecuador, El Salvador, Peru and Guatemala and also has solar and wind projects in its portfolio which will further mitigate other risks related to the toxic emissions limit.

The company posted a lower EPS of $1.02 for the first quarter of 2013 compared to the same quarter in 2012, but it had share dilution from the Progress Energy merger announced in July 2012 apart from integration costs that affected the company’s earnings. However, Duke Energy Corp (NYSE:DUK) posted revenue of $5.9 billion for the first quarter of 2013, up 61.5% from the same quarter a year ago and generated cash flow of $1.3 billion.

Final Comments

From this peer group, the company better positioned for future growth is Duke. Acquiring Duke is a good choice for investors that want exposure to the utility sector in the US, but also internationally as the company has operations outside America. It generates a strong cash flow and has a balanced fuel type generation mix that makes it flexible to changes in regulations which is ideal at this moment. Both American Electric Power Company Inc (NYSE:AEP) and DTE Energy Co (NYSE:DTE) are greatly exposed to new regulations and will have to disburse huge amounts of cash for the transition to gas or other fuels for electricity generation. The best idea is to go long on Duke Energy Corp (NYSE:DUK), but it is also wise to wait until a clear EPA release indicates which will be the restrictions to emissions and assess the real impact on each of these players.

Vanina Egea has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Vanina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article US Coal Utilities: Effects of New Limitations originally appeared on Fool.com is written by Vanina Egea.

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