On May 30, we have issued an updated research report on utility
). The company's heavy investments aimed at infrastructure
modernization will boost its service reliability and lead to
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
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
Key Picks from the Sector
Other better-ranked utility players include
NRG Energy Inc.
Korea Electric Power Corp.
CPFL Energia S.A.
). All these stocks currently carry a Zacks Rank #1 (Strong
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KOREA ELEC PWR (KEP): Free Stock Analysis
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