We recently moved to an Outperform rating for TECO Energy Inc. (TE) as we expect the shares to perform ahead of the broader market going forward.
TECO Energy derives more than half of its revenue from stable regulated electric utilities operating in Florida. We believe the company remains well-positioned to benefit from a recovery in Florida’s economy. Moreover, the recent signs of Florida’s emergence from the politicized regulatory environment remove the uncertainty surrounding the company’s future rate increases.
Furthermore, the company produces, processes and sells mostly bituminous, low-sulfur-content coal through its subsidiary, TECO Coal. TECO Coal has 13 subsidiaries in Eastern Kentucky, Tennessee and Virginia. Through its coal operations, the company maintains a competitive edge over other coal suppliers in Central Appalachia, producing high-quality steam and specialty coals while keeping operating costs to a minimum.
TECO Energy continues to exhibit stable regulated utility operations, having divested its non-core assets as part of its business strategy to focus on its electric and gas utilities. This has helped the company strengthen its capital structure by accelerating debt repayments and further investments in Tampa Electric. The company continues to strengthen its balance sheet by repaying debt.
In the most recent quarter, TECO Energy reported operating earnings of 37 cents per share, above the Zacks Consensus Estimate of 34 cents. For full-year 2010, the company expects earnings per share to range between $1.25 and $1.35.
The Zacks Consensus Estimates for EPS is 41 cents for the third quarter of 2010 and $1.34 for full-year 2010. TECO Energy is expected to release its third-quarter 2010 financial results on October 28, 2010.
Though we remain slightly cautious due to the volatile nature of fuel prices, uncertainty on regulatory decisions and environmental legislations, we believe TECO is a well-managed company with improving fundamentals. We remain confident of the company’s stable and regulated utility operations, effective cost management, potential growth in the company’s coal business and ability to maintain a strong balance sheet.
Additionally, we believe income-seeking investors may find TECO shares appealing given its annual dividend of $0.82 per share, yielding a competitive 4.7%, which is above the utility industry average.
TECO ENERGY (TE): Free Stock Analysis Report
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