The uncertainty pervading the electric utilities industry in general and FPL in particular
precludes a buy or sell recommendation. The absence of a consensus regarding FPL’s future
revealed in the analysts’ reports demonstrates that FPL has a number of upcoming
important decisions, and that there is no uniform way to interpret all the relevant
information. The fact that FPL’s stock has fallen recently coupled with its strong expected
future earnings argue in favor of a buy recommendation. However, FPL will face
unprecedented challenges if Florida institutes retail wheeling. The company is already
hampered by the interest expense on its outstanding debt. Responding to potential
competition by keeping dividends constant or cutting dividends will likely produce a market
backlash, and rising interest rates have already precipitated a steep decline in the stock’s
price. A buy recommendation could leave investors with a firm whose stock price is on the
decline and is about to face unprecedented challenges. At the same time, issuing a sell
recommendation would be impetuous. Management’s warning regarding its high payout
ratio suggests only that it is aware of the increasing risks it faces, and does not signal a
concern over earnings. In fact, the financial statements reveal expected future earnings to
be quite strong. Furthermore, there is no current legislation that would expose FPL to
competitors. FPL’s financial position remains stable and its outlook solid despite the
uncertain industry conditions.