We maintain our long-term Neutral recommendation on DTE Energy Company (DTE). The company presents a mix of stable earnings from regulated electric and gas utilities in Michigan with a portfolio of volatile non-regulated assets.
The company focuses on improving its cost structure and directing capital investments toward renewable generation, utility infrastructure and environmental compliance assets. This improvement in the cost structure will lead to moderate increases to customer bills.
We expect the company’s growth momentum to be maintained by beneficial regulatory policies in Michigan, higher rates for its regulated business and a strong balance sheet. It plans to monetize its Barnett Shale assets and other properties, which would alleviate the need for external borrowings. Meanwhile, the company is also scaling up its Advanced Metering Infrastructure (AMI) program, Reduced Emissions Fuel facilities, and desulfurization units to improve its operational efficiency.
On the other hand, a substantial portion of DTE Energy’s generation assets are coal-based that require substantial capital expenditure to conform to both existing as well as tentative changes in environmental norms and regulations.
Moreover, its primary operating region, Michigan is witnessing high unemployment and a tepid recovery in industries like steel and automotive. Overall, we are concerned about the present unfavorable macro backdrop, lower demand for electricity, and pending regulatory cases.
In February this year, DTE Energy reported fourth quarter and fiscal 2011 earnings. In the fourth quarter, the company posted operating earnings of 89 cents per share surpassing the Zacks Consensus Estimate of 81 cents. Total revenue of DTE Energy in the fourth quarter of 2011 was $2.2 billion, in line with the year-ago figure. It surpassed our expectation by $314 million.
The company presently retains a short-term Zacks #2 Rank (Buy). DTE Energy mainly competes with CMS Energy Corporation (CMS) and Wisconsin Energy Corporation (WEC).
Detroit, Michigan-based DTE Energy Company is a holding company with subsidiaries engaged in regulated and unregulated energy businesses. Detroit Edison Company and Michigan Consolidated Gas Company are its largest regulated subsidiaries. DTE Energy also has four non-utility segments engaged in a variety of energy-related business. DTE Energy’s unregulated businesses include gas pipelines and storage, unconventional gas exploration, power and industrial projects, and energy marketing and trading operations.
CMS ENERGY (CMS): Free Stock Analysis Report
DTE ENERGY CO (DTE): Free Stock Analysis Report
WISC ENERGY CP (WEC): Free Stock Analysis Report
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