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TECO Energy Remains Neutral

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We have maintained our Neutral recommendation on TECO Energy Inc. . The company currently has a Zacks Rank #3 (Hold).

Why the Reiteration?

In first-quarter 2013, TECO Energy’s earnings per share and revenues beat the Zacks Consensus Estimate owing to steady customer growth in its Tampa Electric and People Gas divisions, a marginal benefit from last year's sale of TECO Guatemala, ongoing improvement in housing and cooler-than-normal weather conditions.

Gradual improvement of economy at the state of Florida including housing market recovery, decline in unemployment rate and creation of new jobs will create demand for utility services. These factors will subsequently fuel TECO Energy’s forthcoming performance.

In addition, TECO Energy discontinued its international operations and sold its unit TECO Guatemala for $227.5 million. The company intends to utilize a major part of the sale-proceeds to strengthen Tampa Electric’s portfolio by improving existing set ups and adding new assets. These steps will bring stability to TECO Energy’s operating flexibility by assuring to provide better services to higher number of customers.

On the flip side, the U.S. Environmental Protection Agency is planning to propose new regulations regarding handling, storage and disposal of coal combustion by-products (CCB). The new rules are expected to reduce and abolish the use of CCBs, or eliminate the use of ponds for by-product storage and disposal. Subsequently, the utility companies have to invest substantial amount for dry handling and storage, which will increase operating expenses.

Other Stocks to Consider

The other stocks in the industry that are worth considering include CPFL Energia S.A. and Companhia Paranaense de Energia with a Zacks Rank #1 (Strong Buy), and Integrys Energy Group, Inc. with a Zacks Rank #2 (Buy).

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