We have maintained our Neutral recommendation on
DTE Energy Company
) on Jun 27, 2013 based on the company's first quarter results
and beneficial regulatory policies partially offset by an
unfavorable macro environment and volatility in prices.
Why the Reiteration?
DTE Energy posted strong first quarter results with the top and
bottom line beating the Zacks Consensus Estimate. The results
reflected normal weather compared to a very mild winter in 2012,
operating cost improvements at the utilities, and solid
performances from the non-utility businesses.
The company's regulated electric and gas utilities in Michigan
generate a relatively stable and growing earnings stream. DTE
Energy is focused on improving its cost structure and directing
capital investments toward renewable generation, utility
infrastructure and environmental compliance assets.
Going forward, a focus on cost structure and operational
improvements and a constructive regulatory environment in
Michigan will help the utility to attain a 5% to 6% long-term EPS
growth target and shareholder return in the range of 9% to 10%.
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The company is scaling up its Advanced Metering Infrastructure
program, Reduced Emissions Fuel facilities and desulfurization
units to improve operational efficiency.
The company's significant investment in its non-utility
businesses diversifies risk. The Gas Storage and Pipelines
business continues with its steady growth plan and is evaluating
new pipeline and storage investment opportunities. The various
projects in its portfolio include the Bluestone pipeline, Vector
Pipeline, Millennium Pipeline, and Nexus Gas Transmission System.
Recently, the northern portion of the Bluestone project has come
The company has the practice of returning shareholder wealth via
dividends. The company increased its dividend by 5.6% in May this
year. With the current quarterly dividend of 65.5 cents per
share, the company generates a dividend yield of 3.9%.
Despite these positives, the present unfavorable macro backdrop,
lower demand for electricity, the dismal economy in Michigan and
pending regulatory cases compel us to remain on the sidelines.
Other Stocks to Consider
DTE Energy currently has a Zacks Rank #2 (Buy). Stocks that are
well placed in the energy space are
Alliant Energy Corp.
Black Hills Corp.
), all with a Zacks Rank #2 (Buy).