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Duke Energy reported second-quarter operating earnings per share of $1.43, up from $1.25 in the year-ago quarter, putting the company on track to meet our and management's full-year expectations.

Why it matters: Earnings benefited from strong underlying electricity demand and customer rate increases. Management maintained its 2026 EPS guidance of $6.55-$6.80, in line with our estimate.

The bottom line: We are maintaining our $131 fair value estimate and Narrow Morningstar Economic Moat Rating. Duke Energy trades at a 5% discount to our fair value estimate as of Aug. 4. We consider the utilities sector fairly valued. Management reaffirmed its 5%-7% annual earnings growth guidance to 2030 and expects to be in the upper half of that range beginning in 2028 as electricity demand accelerates, in line with our estimate.

Long view: Duke maintained its $103 billion 2026-30 capital investment plan, supporting nearly 10% annual rate base growth systemwide and supporting our earnings growth outlook. Duke has signed electric service agreements with 7.8 gigawatts of new data centers and reported 15.4 GW in late-stage development. Management expects most of the pipeline to have signed ESAs by mid-2027. Duke's base investment plan does not include a potential $5 billion-$10 billion of additional investment to serve large loads in Indiana and Florida. Duke reached a constructive regulatory settlement at Duke Energy Carolinas, with a 9.8% allowed return on equity and 53% equity structure. The settlement requires commission approval. Management also said that it agreed to a substantially similar settlement framework with its Duke Energy Progress subsidiary, which helps reduce regulatory risk.

Coming up: Duke Energy now has plans to install 15 GW of new capacity by 2031. Integrated resource plans in Florida and North and South Carolina are proceeding as planned.

Our fair value estimate is $131 per share after incorporating year-to-date financial and regulatory updates.

Our annual earnings growth forecast is at the top end of management's 5%-7% growth guidance. Duke's pipeline of growth opportunities, continued management of operating expenses, and constructive regulatory outcomes support our forecast. We estimate that Duke will invest $103 billion over the next five years in its regulated utilities.

We expect management to seek recovery of the investments through rate case proceedings across Duke's jurisdictions. We don't expect a material change in companywide average allowed returns. We anticipate Duke to continue benefiting from constructive regulatory rate increases to support its investment.

In our discounted cash flow valuation, we use a 5.9% cost of capital based on a 7.0% cost of equity. This is lower than the rate of return we expect investors to demand for a diversified equity portfolio, reflecting Duke's lower sensitivity to the economic cycle and lower operating leverage.

We believe Duke has a narrow economic moat.

Duke's regulatory environments on a consolidated basis are more constructive than its regulated peers and is supported by better-than-average economic fundamentals in its key regions. These factors contribute to the returns Duke has earned and have led to a good working relationship with its regulators, the most critical component of a regulated utility's moat.

We think Duke's Florida utility has some of the most constructive rate regulation in the US. The state's ratemaking structure allows for higher-than-average returns on equity, forward-looking rates, and automatic base-rate adjustments.

Legislation in North Carolina significantly improved the state's regulatory constructiveness by allowing multiyear rate plans, performance-based incentive mechanisms, and decoupled revenue for residential customers. All are provisions that we consider part of highly constructive regulatory environments. Regulators have followed with highly constructive rate case outcomes under the legislation. We also view regulation in Indiana positively, where Duke receives above-average allowed returns.

Service territory monopolies and efficient scale advantages are the primary moat sources for regulated utilities such as Duke. State and federal regulators typically grant regulated utilities exclusive rights to charge customers rates that allow the utilities to earn a fair return on and return of the capital they invest to build, operate, and maintain their distribution networks.

In exchange for regulated utilities’ service territory monopolies, state and federal regulators set returns to minimize customer costs while offering fair returns to capital providers.

This implicit contract between regulators and capital providers should, on balance, allow regulated utilities to earn positive economic profits, though observable returns might vary in the short run based on demand trends, investment cycles, operating costs, and access to financing.

The risk of adverse regulatory decisions precludes regulated utilities from wide moats. However, the threat of material value destruction is low, and normalized returns exceed costs of capital in most cases, leaving us comfortable assigning narrow moats to many regulated utilities.

Duke's regulated utilities provide a stable source of earnings. The company's large capital expenditure plan should drive rate base and earnings growth for the next several years. We think Duke can achieve the high end of management's 5%-7% earnings growth target.

The company operates in constructive regulatory jurisdictions, which supports capital investment growth.

Duke's management team has focused on core regulated operations and moaty growth investments.

Equity issuances and capital investment delays have hurt management's relationships with key stakeholders.

Duke's aggressive investment plan increases regulatory risk.

As with all regulated utilities, rising interest rates will raise financing costs and could make the dividend less attractive for income investors.