This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

This Utility Stock Is Still a Great Buy: Opinion

It's Got Gas

The coal business and the pipeline development business are what have really piqued my interest in this stock. In 2008, TECO formed SeaCoast Gas Transmission LLC, a subsidiary that plans to develop and own an intrastate natural gas pipeline in Florida.

Not only would this help grow the distribution side of TECO's natural gas utility, People's Gas System, it would also position the company as a potential wholesale transporter of the fuel in the region. As the nation increasingly switches toward natural gas as a viable energy source, this is a great advantage to have.

TECO's electric utility fuel breakdown is currently 62% coal and 38% natural gas. So if the company transitions toward more natural gas, then a cheap and efficient delivery system will already be in place. I like this kind of forward thinking.

Recently, TECO shares have been under pressure for two main reasons: Investors are shifting away from richly valued utility stocks, and the coal business is seeing lower margins due to higher production costs.

This year, TECO is expected to sell roughly 7 million tons of coal. Production costs are projected to increase to between $83 and $87 per ton, which is up from $80 per ton last year. The positive offset is that the 2012 average selling price is expected to come in at $96 per ton compared with last year's $88 per ton.

To see how this stock still has a good chance to grow, let's do some simple math. Last year's margin was right at about 10%. Let's get in the middle of TECO's expected production cost for coal this year, and call it $85 per ton. Based on a selling price of $96, that's about a 13% margin, and this could actually increase if the company is able to tighten production costs.

Risks to consider: Although aggressively marketed as "clean," coal is truly the environmental whipping boy. More than two thirds of TECO's power generation is coal-fired, so having a coal-mining business that generates about 24% of the company's revenue causes some obvious concerns. That said, it appears the company is correctly and intelligently poised to take advantage of the natural gas boom. Also, while the broader investor coolness toward utility names is without merit, it takes a while for the herd to come back around (which is why you should buy and sell before they do).
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $123.38 0.00%
FB $95.29 0.00%
GOOG $628.00 0.00%
TSLA $264.82 0.00%
YHOO $37.72 0.00%

Markets

Chart of I:DJI
DOW 17,630.27 +189.68 1.09%
S&P 500 2,093.25 +25.61 1.24%
NASDAQ 5,089.2060 +49.43 0.98%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs