On Sep 18, we have issued an updated research report on TECO Energy, Inc. (TE). Systematic investments in organic growth projects and focus on inorganic expansion, backed by a stable liquidity position and increase in customer count are expected to act as catalysts for the company’s future performance.
The thriving Florida economy is also a tailwind for the stock. However, volatility in commodity prices and over-dependence on third-party transmission and distribution service providers might be the growth deterrents.
This Zacks Rank #3 (Hold) stock’s earnings in the second quarter of 2014 beat the Zacks Consensus Estimate and improved year over year, primarily due to improvement in the economic condition of its service territories. Reported revenues, however, missed the estimate on lower contribution from both regulated and unregulated operations.
TECO Energy sees a steady rise in its customer count, primarily due to a recovering Florida economy, a decline in the unemployment rate and recovery in the housing market. A steady investment in several projects will enable the company to meet increasing customer demand.
TECO Energy follows a combination of organic and acquisition-focused growth strategy. The company invested $0.32 billion during the second quarter and plans to spend $2.2 billion between 2014 and 2018. The fund will be primarily utilized for electricity generation, distribution and transmission ventures. These initiatives will help TECO Energy to provide reliable services to its customers.
TECO Energy also engages in strategic acquisitions which are in sync with its growth plan. On Sep 3, 2014, the company acquired New Mexico Gas Intermediate, the parent of New Mexico Gas Company. The acquisition allowed the company to increase its scale of operations and add new customers. In the past TECO Energy had completed several acquisitions, including PGS and West Florida Gas.
TECO Energy maintains a stable liquidity position. The company had total available liquidity of around $0.84 billion and operating cash flow of roughly $0.26 billion in the first half of 2014. A flexible financial profile will allow the company to pursue its capital spending program.
On the flip side, TECO Energy’s operations are commodity price sensitive. An increase in the price of fuel like coal, gas and other commodities could increase the company’s operating costs, thereby negatively impacting margins.
Key Picks from the Sector
Other better-ranked stocks in the sector include Black Hills Corp. (BKH), Pepco Holdings, Inc. (POM) and Pinnacle West Capital Corp. (PNW), each with a Zacks Rank #2 (Buy).
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