We have downgraded our rating on TECO Energy Inc. (TE) to Neutral from Outperform. The downgrade takes into account higher production costs at the energy utility’s coal division, along with uncertainty regarding the timing of an economic recovery in Florida.
The positive catalysts for the company include its stable regulated utility operations, solid utility cost management and a high dividend yield. TECO’s improved balance sheet stands to gain from regular debt repayments.
However, balancing out the gains are fuel price fluctuations, uncertainty involving regulatory decisions and environmental legislations that involve expensive capital outlays. These headwinds prompt us to be a little cautious on the stock.
Fourth Quarter and Fiscal 2010 Recap
TECO Energy’s fourth-quarter 2010 operating earnings of 23 cents per share ($48.9 million) missed the Zacks Consensus Estimate of 24 cents and the year-ago figure of 25 cents per share ($53.9 million).
TECO Energy’s operating earnings for the year were $1.28 per share ($275.5 million), higher than $1.08 per share ($230 million) reported in 2009 but fell short of the Zacks Consensus Estimate, provided by 15 covering analysts, by 3 cents.
Total revenue of the company at the end of the fourth quarter was $775.0 million versus $765.0 million in the year-ago period, reflecting growth of 1.3%. The year-over-year revenue hike was particularly due to a higher contribution from its unregulated business that more than countered the 3.2% shortfall in its regulated operations.
TECO Energy’s total revenue in 2010 was $3,487.9 million versus $3,310.5 million reported in the prior fiscal year, reflecting growth of 5.3%. The regulated business grew a tad 0.9%, but the major driver of revenues last fiscal was a sharp 23.3% growth in the unregulated business.
Our View
Despite the earnings misses suffered in the fourth quarter and fiscal year 2010, the saving grace was a rise in the customer base. However, it will be interesting to see whether the company can steadily add customers in 2011 as well, given the uncertain regulatory environment.
TECO Energy currently retains a Zacks #3 Rank (short-term Hold rating). The operating margin of the company is lower that its peers NextEra Energy Inc. (NEE), Progress Energy Inc.(PGN) and Southern Company (SO) in the trailing twelve months.
Based in Tampa, Florida, TECO Energy is involved in the generation, purchase, transmission, distribution, and sale of electric energy in Florida.
NEXTERA ENERGY (NEE): Free Stock Analysis Report
PROGRESS ENERGY (PGN): Free Stock Analysis Report
SOUTHN COMPANY (SO): Free Stock Analysis Report
TECO ENERGY (TE): Free Stock Analysis Report
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