On Mar 18, we have issued an updated research report on TECO Energy, Inc. TE. Positive synergies from the acquisition of New Mexico Gas Intermediate (“NMGI”), the parent company of New Mexico Gas Company (“NMGC”), and gradual economic recovery in Florida have boosted the company’s results and will likely drive performance in the future as well.
In addition, TECO Energy’s systematic investments in infrastructure development projects backed by stable liquidity are commendable. However, strict regulations coupled with volatile commodity prices will likely offset these positives.
In fourth-quarter 2014, this Zacks Rank #3 (Hold) stock’s earnings missed the Zacks Consensus Estimate, while revenues beat the same. Improvement in the regulated business and unregulated operations, contribution from the NMGC assets and a steady growth in customer count on the heels of recovery in Florida’s economy primarily led to year-over-year growth of both the top and bottom lines.
TECO Energy completed the acquisition of NMGC during the third quarter of 2014 in a transaction valued at $950 million. The company added over 513,000 gas customers to its portfolio from the acquisition. The transaction contributed $137.5 million to fourth-quarter revenues and is expected to boost future revenues as well, driven by growing demand of natural gas for floor-heating purposes.
TECO Energy has been enhancing its customer base over the last several quarters, primarily on the back of a decline in unemployment rate and roll-out of the new single-family building permits driven by steady improvement in Florida’s economy. These positives are expected to drive customer growth in the future.
TECO Energy maintained a stable liquidity profile, backed by a strong cash generating capacity. In 2014, the company’s total liquidity came in at $784.1 million and operating cash flow stood at $664.8 million. A stable financial position supports the company’s disciplined capital spending program. The company plans to invest $3.03 billion between 2015 and 2019.
On the flip side, TECO Energy’s operations are subject to several government rules. Any change in regulations might either interrupt its operations or require installation of infrastructure at its facilities, thereby increasing operating costs.
Key Picks from the Sector
Some better-ranked stocks in the same industry include Avista Corporation AVA, DTE Energy Co. DTE and Public Service Enterprise Group Inc. PEG, each carrying a Zacks Rank #2 (Buy).
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