Analyst Actions: FirstEnergy Downgraded To Neutral, PT Cut $5 at Credit Suisse; Shares Fall 7%

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Analysts at Credit Suisse have downgraded FirstEnergy Corp. ( FE ) to a Neutral rating from Outperform, while lowering their price target on the stock to $40 from $45 a share.

"We have liked FE shares over peers for some time, attracted to the large base of regulated utility earnings (73% of 2015) that to us better protected the rich 5.2% dividend yield as well as management's commitment to, and success in, finding ways to extract value from the generation business ( FES ) in spite of sustained weak power market conditions through the early adoption of Retail, aggressive O&M controls, and fleet management through plant closures and seasonal dispatch until unit economics improved," said Credit Suisse.

"We still see FE striving to do these things but the ugly reality of the 2016/17 RPM auction results are hard to deny: poor discipline by incumbent generators in the face of depressed forwards and the crushing impact of newbuild capacity plus greater imports are all contributing to an oversupplied market that will inevitably leave energy and capacity prices weak."

The firm added "We are lowering FE to Neutral (from Outperform) - meaning performance in-line with peers - and a target of $40 (from $45) built from our sum-of-the-parts valuation methodology. We see downside from here in all of the Integrated power names as the long and uncertain path to a power market recovery forces investors to reconsider the multiples paid for commodity cyclical power generation assets.

"We are loathe to downgrade FE after the run of underperformance in 2013 and could see some catalysts that could help the story relative to our revised view:

A steeper rally in natural gas prices could boost power prices and create more enthusiasm that generator profitability will improve faster, allowing investors to take advantage of FE's leverage to higher power prices.

"We are revising our 2013/2014/2015 EPS estimates to $3.01/$3.09 (from $3.02/$3.06) respectively."

Shares if FE are down 7.4% to $39.48 in afternoon trade, and moves in the low end of a 52-week range of $38.26 - $51.14.

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

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This article appears in: Investing , Commodities
Referenced Symbols: FE ,

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