We reiterate our Neutral recommendation on
TECO Energy, Inc.
). The company's second-quarter 2012 results missed the Zacks
Consensus Estimate and the year-ago quarterly earnings. The
disappointing result resulted from a decline in the company's
regulated electric and gas sales, as well as its unregulated
We know that utility business, to a great extent, depends on
weather patterns of the region and TECO Energy is no exception.
Volatile weather conditions not only lower the demand, but also
interrupt coal production or transportation, thereby hiking the
company's operational costs.
On the positive side, TECO's subsidiary Tampa Electric Company has
a monopoly over retail electricity division in its areas of
operations and hence acts as a major revenue churner for the
company. The company also expects steady year-over-year customer
growth from its Tampa Electric and Peoples Gas divisions due to
gradual improvement of economy at the state of Florida. This will
eventually improve the company's financial performance.
In addition, we believe that housing market recovery, decline in
unemployment rate and creation of higher number of new jobs in
Florida will influence the consumers to spend more and pay the
utility bills on time. These factors will boost TECO Energy's
TECO's second-quarter 2012 earnings came in at 34 cents per share,
missing the Zacks Consensus Estimate of 37 cents and year-ago
earnings of 36 cents per share. During the company's earnings call,
TECO Energy lowered its earnings expectation to $1.20-$1.30 per
share from its prior forecast of $1.30-$1.40 per share. This
downward anticipation was due to the negative effect of mild
weather in the month of July.
On the flip side, TECO Coal primarily operates underground mines,
which generally involve higher operating costs and greater
regulatory clearance. Currently, the company is planning to operate
a new surface mine to increase its production volume, for which it
needs to procure permits from the U.S. Army Corp of Engineers. The
issuance of permits has been challenged in court by several
environmental groups, resulting in a bottleneck.
In 2013 Federal Budget, the U.S. government is planning to
eliminate the provision for depletion tax deduction for coal mines
and other hard minerals and fossil fuels. If it happens, then the
effective tax rate will rise to 37% from 20-25%, thereby adversely
affecting TECO Coal's financial performance from 2012 onwards.
TECO Energy Inc. currently retains a Zacks #4 Rank, which
translates into a short-term Sell rating. The company competes with
Wisconsin Energy Corporation
Tampa, Florida-based TECO Energy Inc. is involved in regulated
utility operations. Through its subsidiaries, it generates,
transmits, distributes, purchases and sells electric energy in
Florida and Guatemala.
TECO ENERGY (TE): Free Stock Analysis Report
WISC ENERGY CP (WEC): Free Stock Analysis
To read this article on Zacks.com click here.