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Analyst downgrades TECO stock
By LOUIS HAU, Times Staff Writer TECO Energy Inc.'s stock has been slapped with a rare "sell" rating from A.G. Edwards & Sons Inc., which cites concerns about what could be an "overly ambitious" wholesale power business at the utility. The analyst's report highlights Wall Street's jitters about overcapacity in the merchant-power industry, which is in the midst of a building boom that some observers fear is ill-timed given a weakened U.S. economy. A.G. Edwards analyst Timothy Winter downgraded TECO to "sell" from "hold," arguing that the company's buildup of power-generating capacity has put its earnings outlook at risk. Winter figures TECO will be highly dependent on wholesale power prices, which he thinks will stay depressed for a few years. "The electric power development industry is proposing to build more than 500,000 megawatts of power capacity, which represents a nearly 60 percent increase from the current supply level," Winter wrote in the report. "As a result, we anticipate an oversupply condition in 2003 and 2004. . . . We believe the potential for 2003 (earnings) disappointment outweights the positive investment features of the regulated electric and gas utility business in Florida." Winter projects TECO will report net income of $2.30 a share in 2002 and $2.10 in 2003. That compares to consensus earnings estimates of 15 analysts polled by Thomson Financial/First Call of $2.32 a share for this year and $2.20 for next year. In 2001, TECO reported net income of $2.26 a share. Winter wasn't wholly negative on TECO's prospects, describing TECO units Tampa Electric and Peoples Gas as "high quality, well-run utilities that serve a growing customer base," adding that they "should provide stable and modestly growing earnings streams." He also described the company's portfolio of other nonregulated businesses as having "a proven track record of growth." Sell ratings are rare among equity-research analysts and are typically only assigned to companies in unusually dire financial straits. A.G. Edwards itself assigns sell recommendations to only 3 percent of the roughly 700 companies it covers. On a scale of 1 to 5, with 1 being the highest and most favorable recommendation, TECO is rated 1 by one analyst, 2 by three analysts, 3 by seven analysts, 4 by two analysts and 5 by one analyst, according to Thomson Financial/First Call. The A.G. Edwards report was dated Aug. 12, when TECO's stock closed at $24.27. Since the report's release the following morning, TECO's share price has fallen to as low as $19.95, an 18 percent decline, before rebounding slightly to finish Wednesday at $21.12. Mark Kane, TECO's director of investor relations, downplayed the importance of the A.G. Edwards report, noting that other industry observers are more bullish on the company. Robert W. Baird & Co., one of the underwriters of TECO's offering in June of 15.5-million common shares, has a strong-buy rating on the stock. "It's just one opinion of many," Kane said. "You need to look at TECO Energy in total, not just one business segment." Kane acknowledged that TECO hasn't yet inked power sale contracts for four new power plants it is building. They include two 599-megawatt power stations in Dell, Ark., and Kosciusko, Miss.; the massive 2,145-megawatt Gila River Power Station in Gila Bend, Ariz.; and the 2,205-megawatt Union Power Station in El Dorado, Ark. The latter two are 50-50 joint ventures with Panda Energy International Inc. of Dallas. All four are due to go online by the end of 2003. Kane declined to comment on Winter's assertion that TECO hasn't yet contracted for the sale of the output because the prices that buyers are willing to pay are lower than assumptions made when development plans were announced. "We are actively pursuing power sales agreements for all of those facilities," Kane said. "It takes a while to negotiate contracts and the buyers are shopping. They have multiple opportunities and they're shopping." -- Louis Hau can be reached at hau@sptimes.com or (813) 226-3404.
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From the Times Business report
From the AP
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