Teco Energy (TE) Annual Valuation – 2014

TECO_Energy_LogoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Teco Energy fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): TECO Energy, Inc. (TECO Energy) is a holding company for regulated utilities and other businesses. TECO Energy owns no operating assets but holds all of the common stock of TEC and, through its subsidiary TECO Diversified, owns TECO Coal. TEC, a Florida corporation and TECO Energy’s subsidiary, has two business segments. Its Tampa Electric division provides retail electric service to more than 687,000 customers in West Central Florida with a net winter system generating capacity of 4,668 megawatts. Peoples Gas System (PGS), the gas division of TEC, is engaged in the purchase, distribution and sale of natural gas for residential, commercial, industrial and electric power generation customers in Florida. On December 19, 2012, the Company sold San Jose power station and related facilities in Guatemala.

TE Chart

TE data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $16.87
MG Value $7.42
MG Opinion Overvalued
Value Based on 3% Growth $15.65
Value Based on 0% Growth $9.17
Market Implied Growth Rate 3.57%
Net Current Asset Value (NCAV) -$19.59
PEmg 15.63
Current Ratio 1.12
PB Ratio 1.57

Balance Sheet – 12/31/2013

Current Assets $857,700,000
Current Liabilities $765,400,000
Total Debt $2,837,800,000
Total Assets $7,448,000,000
Intangible Assets $0
Total Liabilities $5,114,300,000
Outstanding Shares 217,300,000

Earnings Per Share

2013 $0.92
2012 $1.14
2011 $1.27
2010 $1.11
2009 $1.00
2008 $0.77
2007 $1.90
2006 $1.17
2005 $1.00
2004 -$2.10

Earnings Per Share – ModernGraham

2013 $1.08
2012 $1.13
2011 $1.15
2010 $1.12
2009 $1.14
2008 $0.99

Dividend History

TE Dividend Chart

TE Dividend data by YCharts


Teco Energy is not currently suitable for either the Defensive Investor or the Enterprising Investor, but if it can demonstrate positive earnings for another year, it will qualify for both investor types next year.  As it stands now, though, the lack of earnings stability over the ten year period and the low current ratio eliminate it from the Defensive Investor’s list.  The high debt relative to current assets and the lack of earnings growth over the five year period eliminate it from the Enterprising Investor’s list.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of 5 Undervalued Companies for the Defensive Investor and 5 Undervalued Companies for the Enterprising Investor.  From a valuation perspective, the company appears to be overvalued, having seen its EPSmg (normalized earnings) fall from $1.14 in 2009 to $1.08 for 2013.  This lack of growth does not support the market’s implied estimate of 3.57% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Teco Energy (TE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Teco Energy (TE) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.





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