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We maintain our Neutral recommendation on DTE Energy Company (DTE - Analyst Report). DTE Energy’s regulated electric and gas utilities in Michigan generate a relatively stable and growing earnings stream. We also believe that a constructive regulatory environment in Michigan will aid in earnings growth.

Going forward, we believe that infrastructure improvement capital programs, the outcome of future regulatory proceedings, investment returns and changes in discount rate assumptions in benefit plans and health care costs would also boost earnings.

DTE Energy focuses on improving its cost structure and directing capital investments toward renewable generation, utility infrastructure and environmental compliance assets. We believe that a focus on its cost structure and operational improvements will help the utility attain a 5%–6% long-term EPS growth target and shareholder return in the range of 9%–10%. Moreover, improvement in the cost structure will also come in good stead as it will reduce the hike in customer bills.

Overall, we expect the growth momentum to be maintained by beneficial regulatory policies in Michigan, higher authorized rates for its regulated business, growth opportunities in its unregulated businesses and an industry-high dividend yield. The company’s plans to monetize its Barnett Shale assets and other properties would alleviate the need for external borrowings.

However, we prefer to remain on the sidelines due to the present unfavorable macro backdrop, lower demand for electricity, and the dismal economy in Michigan. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Detroit, Michigan-based DTE Energy Company is a holding company with subsidiaries engaged in regulated and unregulated energy businesses. Detroit Edison Company and Michigan Consolidated Gas Company are its largest regulated subsidiaries. DTE Energy also has four non-utility segments engaged in a variety of energy-related business. DTE Energy’s unregulated businesses include gas pipelines and storage, unconventional gas exploration, development and production; power and industrial projects and coal transportation and marketing, and energy marketing and trading operations.

Some of its main competitors are CMS Energy Corp. (CMS - Analyst Report) and Wisconsin Energy Corp. (WEC - Analyst Report).

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