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On Jun 6, we have issued an updated research report on TECO Energy, Inc. (TE - Analyst Report). The diversified utility provider’s strong financial position and disciplined investment program on growth projects are expected to act as catalysts for future growth. In addition, we appreciate TECO Energy’s practice of paying regular dividends. However, volatility in commodity prices and over-dependence on weather patterns might challenge the company’s future performance.

TECO Energy, a Zacks Rank #3 (Hold) stock, reported mixed results in first-quarter 2014. Quarterly earnings per share surpassed the Zacks Consensus Estimate while revenues missed the same. On a year-over-year basis, both the top as well as the bottom line improved primarily on the back of higher demand and an expanded customer base, as economic conditions improved at the company’s service territories. The rate case settlement at its Tampa Electric unit also had a positive impact.

TECO Energy maintained a stable liquidity position of $782.3 million, including a cash balance of $137 million and $645.3 million available under the credit facilities as of Mar 31, 2014. In the first three months of 2014, the company’s cash flow from operating activities surged 18.4% to $186.9 million from the prior-year comparable level.

A stable financial position enables TECO Energy to follow a systematic capital spending program to expand its scale of operations besides adding new assets to its portfolio. The company intends to invest $2.2 billion within 2014 and 2018, primarily for electricity generation, distribution and transmission. For gas infrastructure projects, TECO Energy plans to invest a total of around $0.5 billion between 2014 and 2015 mainly to replace aging infrastructure and extend operations.

We also see a gradual rise in the customer count of TECO Energy’s electric utility operations, primarily due to a drop in the unemployment rate and recovery in the housing market. A steady investment in numerous ventures will enable the company to meet increasing customer demand besides providing reliable services.

In addition, TECO Energy has a regular dividend payment history. During first-quarter 2014, the company paid $48 million as common stock dividends.

On the flip side, TECO Energy’s businesses are sensitive to commodity prices. The company generates electricity from fuels like coal, gas and oil. Rise in fuel prices could impact the company’s operating costs and margins.

Key Picks from the Sector

Some better-ranked stocks in the sector include NRG Energy, Inc. (NRG - Analyst Report), Entergy Corporation (ETR - Analyst Report) and Black Hills Corporation (BKH - Snapshot Report). All the stocks carry a Zacks Rank #1 (Strong Buy).

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