While the Duke Blue Devils are once again considered tops in the country, the same can't be said of Motley Fool Income Investor recommendation Duke Energy (NYSE:DUK). Although this large utility company enjoyed a good run alongside its peers in the first half of the year, the stock cooled down during the hot summer.
Assorted charges and expenses muddied third-quarter results, but the company did manage to post 56% growth in diluted ongoing basic earnings per share (EPS). That figure basically takes segment earnings before interest and taxes (EBIT), subtracts interest expense and taxes, but excludes a big loss from discontinued operations. Going by this number, the company beat the average estimate fairly handily.
It would seem that Duke saw good performance from just about all of its businesses except international energy. EBIT grew about 34% in the franchise electricity business as warm weather spurred better retail sales, and industrial sales came in slightly positive. Elsewhere, the gas transmission, field services, and real estate businesses all performed well.
During the quarter, the company decided to dispose of most of its Duke Energy North America business outside of the Midwest. This is basically an unregulated wholesale power business (not too unlike Calpine (NYSE:CPN) or AES (NYSE:AES)) and operations here haven't been all that strong. Duke will hang on to the Midwestern assets, though, as the impending merger with Cinergy (NYSE:CIN) should make those underutilized plants more useful and cost-effective.
Although the Cinergy deal will hurt free cash flow in the short run, it'll likely pay off over time, especially if the deal does improve the efficiency of those Midwestern plants. Still, interest rates are on the rise and people are worried about inflation. That's not usually too good for utility stocks. Nevertheless, Duke's valuation and dividend yield aren't unreasonable, and patient holders will probably do just as well if they sit tight and keep cashing the dividend checks.
More utilitarian takes:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
