In the eyes of some investors,

Duke

(DUK) - Get Report

has gone from royalty to royal pain.

The North Carolina energy giant -- one of the last real powers in the ragged merchant energy sector -- keeps buckling under the weight of its own lofty promises. Duke's latest tumble came last week after the company missed third-quarter earnings by a nickel, pressuring full-year guidance that was sharply lowered just weeks ago.

The stock plunged on the news, and analysts -- rattled by fresh disappointment -- took advantage of a Thursday morning conference call to vent their frustrations. Even polite investors revealed a growing unease about Duke's rose-tinted view of its future. One fund manager outright challenged Duke's ability to meet unchanged earnings guidance for 2003, which includes no room for further deterioration in the battered energy market.

"That might be viewed as even a little optimistic compared to what the message of the market is saying," said John Fisher of Raymond Capital.

Duke points to its healthy utility and pipeline operations and dismisses worries expressed by some investors about its disclosure practices and liquidity position. But with its stock still valued at $17 billion even after a 50% haircut in the last year, Duke's critics say the company faces a long uphill climb in an unforgiving environment just to meet its future goals.

Duke rose 46 cents Friday to $19.54.

Ahead of the Curve

Unlike most of its peers, Duke sees a "slight uptick" in next year's market conditions but acknowledges that its projections are vulnerable.

Analysts aren't waiting around for another surprise. On average, they expect Duke to miss the low end of its own 2003 guidance by 4 cents a share. In the meantime, they're still picking apart the contributors to Duke's recent miss.

The biggest drag, unsurprisingly, stems from Duke's energy trading unit. The company recorded a $161 million mark-to-market loss just one quarter after posting a $46 million MTM gain that helped push earnings ahead of estimates and -- because of huge MTM losses elsewhere in the industry -- raised the eyebrows of some critics.

Duke showed other signs of weakening as well. Because of the depressed merchant energy market, the company scaled back some power plant projects, which resulted in a $163 million third-quarter loss. Interestingly, the company wrote off only one-quarter of the value of its unused turbines, indicating that even larger charges could be forthcoming.

The plant deferrals also contributed to a massive decline in Duke's "accrual" book, future power contracts that lost more than $1 billion -- or 17% -- of their value in the latest quarter. Such hits led some analysts to question Duke's unwavering commitment to a disastrous business that's crushing so many players.

Duke defended its trading operation, saying it plans to emerge from the meltdown as one of the few survivors.

"We're very proud of our trading and marketing operation," CFO Robert Brace told analysts Thursday. "We're not looking at pulling back."

Flirting With Danger

Given the industry's violent slide, some bears are forecasting a risky year ahead for the company. Like many corporations, Duke still needs to address a significant shortfall in its pension funding. The company's pension liability has ballooned to $772 million, or about triple the amount Duke threw out to analysts earlier this month.

"They said it was their best guess at the time," one critic said. "If their best guess is three times lower than the actual number, just how well do they really know their business?"

Such missteps have led some observers to question more than Duke's earnings projections. They believe the company is unjustifiably optimistic about its ability to fund its entire business with next year's cash flow. Barring a strong turnaround, they predict that a liquidity crunch could send Duke on a desperate chase for short-term financing to pay off long-term debt.

"People think Duke has major cash problems," one short-seller said.

Duke pointed to its continued access to the capital markets as just one sign of its financial strength. But the company had difficulty saying "with 100% confidence" that no liquidity crisis looms.

Keeping Secrets

Investors have already chided Duke for an alleged lack of full disclosure. They kicked up the heat on Thursday, when they learned that a

Securities and Exchange Commission

probe had taken a formal turn.

Duke attempted to downplay the SEC investigation, which is focused on the company's possible use of so-called round-trip energy trades to inflate revenue and volume.

"As I understand it -- and I'm not a lawyer -- the SEC at some point in a normal process moves the investigation to a formal stage to allow them to move on," Brace told analysts. "This happened a month or so ago, but we became aware of this in October."

Philip Jonaman of Monarch Capital scoffed at the company's belief that the matter was less than material.

"I am not a lawyer, either," Jonaman said. "But I guess I'm a little confused as to why this wasn't considered material and immediately released to investors."

Hot Line

Jonaman isn't the only investor steaming. Other industry experts, still hoping to unleash their own questions, continue to simmer.

"The fact is, these guys are kidding themselves, and they're not being honest with people," one utility analyst said.

Duke continues to stand by its word. The company said that, by dwelling too much on energy trading, people are overlooking the power of its strong gas transmission and regulated utility businesses.

"We're not kidding anyone that we have two very healthy sectors of our operation," said Duke spokesman Randy Wheeless. "We have one that's not doing that well. But with any kind of modest upturn, it will return to its very healthy ways."