TECO Energy Inc. has struggled this year to convince Wall Street analysts that it is putting its wholesale power problems behind it.
But now, J.P. Morgan has become the first brokerage firm in months to recommend TECO's stock. This month, J.P. Morgan analyst Brooke Glenn Mullin initiated coverage of the Tampa utility at "overweight," its highest rating. In a research note, Mullin said the depressed price of TECO's stock didn't reflect the company's strong core utility operations, cash flow stemming from various tax benefits, prospects for above-average earnings growth and progress in reducing exposure to the troubled wholesale power business.
Mullin also said that TECO benefits from a favorable regulatory environment, describing the Florida Public Service Commission as "constructive regulators that have allowed companies to earn reasonable rates of return." Mullin said she expects TECO to continue paying its dividend at current levels.
"We are not defending the company's prior decisions, but at this point we think the bad news is primarily behind the company," she said.
Meanwhile, Mullin also joined the growing number of analysts who are concerned about the near-term prospects for Progress Energy Inc., the Raleigh, N.C., parent of Progress Energy Florida of St. Petersburg.
Mullin initiated coverage of Progress at "underweight," its lowest rating. She cited the possibility of rate cuts in Florida and North Carolina during the next few years; concerns that the company may lose lucrative federal tax credits on coal-based synthetic fuel; and above-average debt levels.
It's worth noting that TECO and Progress are both clients of J.P. Morgan. The firm has provided investment-banking services to both utilities during the past year and expects to continue doing so for the next three months.
