The following is a summary of a UBS full-length report on this topic, dated
December 6, 2005.
* Warm weather aids 3Q05 results:
DUK's 3Q05 recurring EPS of $0.59 exceeded that of both the year-ago
period ($0.37) and the
consensus estimate ($0.48). Excluding special items, the company's
operating income rose 20%
to $1.0 billion year-over-year, boosted by warmer than normal weather
and customer growth.
Additionally, DUK's predominantly coal- and nuclear-fired plants kept
fuel costs well contained
during the quarter.
* Merger with Cinergy, asset sales appear to be on track:
DUK's merger with Cinergy Corp., announced in May 2005, appears to be
proceeding apace. Additionally,
we view favorably the company's plan to sell substantially all of the
generation assets and derivative
contracts of its merchant generation business. The divestiture will
entail a $1.3 billion pretax non-cash
charge, but would eliminate DUK's riskiest and poorest performing
business segment.
* Maintain Market Perform recommendation:
Management has indicated that after shareholders approve the merger with
CIN (expected in February 2006),
DUK may use some of its cash balance to enhance shareholder value,
including resuming stock buybacks and
perhaps increasing the dividend. Given our expectations for DUK's bond
spreads to trade in-line with
comparably rated peers, we maintain our Market Perform recommendation.