FirstEnergy Held in Balance - Analyst Blog

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On May 30, we have issued an updated research report on utility operator FirstEnergy Corp. ( FE ). The company's heavy investments aimed at infrastructure modernization will boost its service reliability and lead to customer retention.

In 2014, the company plans to shell out $3.3 billion for asset development initiatives. FirstEnergy's big ticket project, Ohio Smart Modernization project which is nearing completion will likely offer superior quality services to its customers.

However, stringent pro-environment regulations could impose cost pressure leading to margin constraints. Recently, the Obama administration rolled out its plan to cut carbon-dioxide emissions from power plants by 30% by 2030. The rule, which will likely be finalized next year, could prove to be a setback for FirstEnergy's coal-fired generation units.

FirstEnergy, a Zacks Rank #3 (Hold) stock, posted unfavourable financial results in the first quarter of 2014 with the bottom line trailing the Zacks Consensus Estimate. On a year-over-year basis, revenues increased 13.5% while earnings plunged 48.7% due to a challenging competitive business which offset the positive contributions from distribution and transmission business.

Going ahead, the gradual economic recovery in FirstEnergy's service territories could act as a catalyst to sales. The combination of rising electric deliveries and a stable customer portfolio will support its revenue stream.

Moreover, the company's strong cash generating capability will amply fund its future investments. The first quarter of 2014 saw a sharp 84% year-over-year increase in operating cash flow to $92 million.

However, volatility in commodity prices might continue to act as a headwind. Moreover, operational disruption related to breakdown of equipment and risks of accidents could undermine the company's performance.

Key Picks from the Sector

Other better-ranked utility players include NRG Energy Inc. ( NRG ), Korea Electric Power Corp. ( KEP ) and CPFL Energia S.A. ( CPL ). All these stocks currently carry a Zacks Rank #1 (Strong Buy).


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KOREA ELEC PWR (KEP): Free Stock Analysis Report

FIRSTENERGY CP (FE): Free Stock Analysis Report


CPFL ENERGI-ADR (CPL): Free Stock Analysis Report

NRG ENERGY INC (NRG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: KEP , FE , CPL , NRG

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