Growth Squeeze Taints Prospects at Duke

Duke has already shed nearly all of the assets that it had targeted for sale this year. It sold its Australian assets -- at a nice premium -- and then followed up with the sale of its most distressed merchant plants this month. It has no plans for other major divestures, Sheffield said, although it might entertain reasonable offers for three mothballed power plants in the western U.S.

In the meantime, Duke expects to reap $2.5 billion for the assets it has already agreed to sell. Rubin, for one, hopes to see Duke use that cash to pay down debt and retain its "capital discipline" going forward.

For now, Rubin is willing to give Duke some credit for the company's recent progress. He pointed to "several positive developments," in fact, following the company's latest earnings release. He noted that the company had managed to pay down debt with cash from operations. He said Duke had already exceeded its asset sale goals -- even before shedding the eight merchant plants. And he even applauded the company's enhanced disclosures as it broke out, for the first time ever, profits from its real estate division.

But Rubin also fretted over two major issues. He said that DENA remains a significant drain on the company. And he challenged Anderson's assessment that Duke is now positioned for growth.

"We could not disagree more," Rubin stated. "While the company made some progress in the first quarter of 2004 from a debt-reduction standpoint, DENA remains a disaster, Duke Capital [DENA's parent] remains over-leveraged and debt reduction/conservative capital deployment needs to stay the focus."

Rubin warned that Duke Capital's credit rating, in particular, could be at risk.

"We have continued to hold the view that being patient at Duke Capital made sense due to the changes in management and the issues at the unit," he wrote. But "only a continued focus on debt reduction at the Duke Capital unit ... will allow us to keep our lower BBB rating."

In contrast, Fitch actually raised its outlook on both Duke and Duke Capital from negative to stable following recent news of the company's asset sales. It currently rates Duke BBB-plus and Duke Capital BBB-minus -- or just one notch above junk status.

Meanwhile, most equity analysts remain cool on the company's stock. Although two analysts now recommend buying Duke, most continue to suggest holding -- or even selling -- the shares.