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We have maintained our Neutral recommendation on DTE Energy Company (DTE - Analyst Report) 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%.

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 online.

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. (LNT - Snapshot Report), ALLETE, Inc. (ALE - Snapshot Report) and Black Hills Corp. (BKH - Snapshot Report), all with a Zacks Rank #2 (Buy).

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