The big question this week is if the Federal Reserve will hike interest rates. Perhaps the companies that this potential hike will have the biggest impact on are utilities and telecom. Duke Energy Corp. (NYSE: DUK) is the largest utility in the United States, so naturally investors will be looking to this company to see how it will weather the storm. Argus believes it has the answer.

Argus reiterated a Buy rating on Duke, but lowered its target price to $79 from $85, based on a lower 2015 earnings per share (EPS) forecast. The rating reflects growth in the company’s rate base from infrastructure investment, as well as the recent sale of its nonregulated generating assets in the Midwest.

The firm lowered its 2015 EPS estimate to $4.65 from $4.70. Kilowatt-hour sales growth in Duke Energy’s service territories has not improved as much as previously expected. Sales are expected to grow at a rate of 0.9% to 1.0% annually, compared with the previous estimate of 1.0% to 1.1%, and Argus expects this to continue through the second quarter of 2016.

Duke has solid fundamentals. The company’s rate base growth over the next four to five years is expected to be above the peer-group average, which should drive long-term earnings and cash flow growth. Additionally, Argus continues to expect annual dividend growth of 2.0% to 2.5% over the next several years. The shares offer a solid dividend yield of about 4.8%.

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Other positive fundamentals include the company’s improving balance sheet, generally positive relationship with state regulators, operating efficiencies and well-managed nuclear-generating assets.

The expected rise in Duke’s construction spending for new power plants, infrastructure improvements and alternative energy projects should have little, if any, impact on long-term earnings growth. Duke is now benefiting from positive changes in its regulated electric utility rate structures, improving economic conditions in the Carolinas and Florida, and expectations for moderate kilowatt-hour sales growth in both the wholesale power segment and the regulated utilities segment.

In Argus’s view, these factors make the shares a sound long-term holding for investors seeking moderate share price appreciation and a solid and growing dividend. The firm thinks the annualized payout of $3.30 per share is secure based on the company’s growing cash flow, increased balance sheet strength and clearer earnings visibility. These factors should combine to generate total returns for shareholders of about 7% to 8% annually over the next four to five years.

Overall, Argus believes that Duke Energy is committed to optimizing the value of its portfolio of regulated utilities, and that it has the potential to generate solid total annual returns for shareholders.

Shares of Duke were relatively flat at $68.28 Tuesday afternoon. The stock has a consensus analyst price target of $78.76 and a 52-week trading range of $67.27 to $89.97.

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