Dj Duke Energy Corp. Stock Underperforms Wednesday When Compared To Competitors

Investors in Duke Energy Corporation DUK need to pay close attention to the stock based on moves in the options market lately. That is because the Jan 17, 2025 $165.00 Put had some of the highest implied volatility of all equity options today.

What is Implied Volatility?

Implied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean there is an event coming up soon that may cause a big rally or a huge sell-off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.

What do the Analysts Think?

Clearly, options traders are pricing in a big move for Duke Energy shares, but what is the fundamental picture for the company? Currently, Duke Energy is a Zacks Rank #3 (Hold) in the Utility - Electric Power industry that ranks in the Top 50% of our Zacks Industry Rank. Over the last 60 days, two analysts have increased their earnings estimates for the current quarter, while one analyst has revised the estimate downward. The net effect has taken our Zacks Consensus Estimate for the current quarter from earnings of $1.59 per share to $1.65 in that period.

Given the way analysts feel about Duke Energy right now, this huge implied volatility could mean there’s a trade developing. Oftentimes, options traders look for options with high levels of implied volatility to sell premium. This is a strategy many seasoned traders use because it captures decay. At expiration, the hope for these traders is that the underlying stock does not move as much as originally expected.

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Zacks Investment Research

Duke Energy (DUK) has recently been on Zacks.com's list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock's performance in the near future.

Over the past month, shares of this electric utility have returned -4.5%, compared to the Zacks S&P 500 composite's +3% change. During this period, the Zacks Utility - Electric Power industry, which Duke Energy falls in, has lost 0.7%. The key question now is: What could be the stock's future direction?

Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Revisions to Earnings Estimates

Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.

Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

For the current quarter, Duke Energy is expected to post earnings of $1.65 per share, indicating a change of +9.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +3.5% over the last 30 days.

The consensus earnings estimate of $5.97 for the current fiscal year indicates a year-over-year change of +7.4%. This estimate has remained unchanged over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $6.34 indicates a change of +6.2% from what Duke Energy is expected to report a year ago. Over the past month, the estimate has remained unchanged.

Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Duke Energy is rated Zacks Rank #3 (Hold).

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Revenue Growth Forecast

While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.

For Duke Energy, the consensus sales estimate for the current quarter of $7.66 billion indicates a year-over-year change of +6.3%. For the current and next fiscal years, $30.47 billion and $31.37 billion estimates indicate +4.9% and +2.9% changes, respectively.

Last Reported Results and Surprise History

Duke Energy reported revenues of $8.15 billion in the last reported quarter, representing a year-over-year change of +2%. EPS of $1.62 for the same period compares with $1.94 a year ago.

Compared to the Zacks Consensus Estimate of $8 billion, the reported revenues represent a surprise of +1.98%. The EPS surprise was -6.36%.

Over the last four quarters, Duke Energy surpassed consensus EPS estimates two times. The company topped consensus revenue estimates two times over this period.

Valuation

No investment decision can be efficient without considering a stock's valuation. Whether a stock's current price rightly reflects the intrinsic value of the underlying business and the company's growth prospects is an essential determinant of its future price performance.

Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Duke Energy is graded C on this front, indicating that it is trading at par with its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Bottom Line

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Duke Energy. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term.

Zacks Investment Research