FirstEnergy (FE) Strong on Residential Demand & Investments

FirstEnergy Corporation’s FE expanding regulated base and increasing transmission lines are expected to boost its earnings. Also, the company’s efforts to reduce emission levels are likely to be beneficial in the future.

For 2020, the company’s earnings estimates have moved 1.6% north to $2.54 per share in the past 60 days. Additionally, FirstEnergy has a trailing four-quarter earnings surprise of 6.59%, on average.

What’s Driving the Stock?

FirstEnergy’s efforts to expand its regulated generation mix lent consistency to its long-term earnings. The utility’s transmission and distribution operations are spread across 65,000 square miles in six states and its rate structure provides stability during an economic crisis.

Due to stay-at-home orders, FirstEnergy is experiencing an increase in residential demand. Remarkably, the company’s 65% distribution revenues are generated from residential customers, which helped it offset the decline in other customer groups’ demand due to the ongoing pandemic.

The utility player reaffirmed its long-term CAGR projection of 6-8% for operating earnings during the 2018-2021 forecast period and expected the same to be 5-7% for the 2022-2023 period. The company’s investment in strengthening its transmission and distribution lines will enable it to serve its six million customers more efficiently. It aims to spend $17.6 billion on solidifying its transmission and distribution network for the 2018-2023 time period.

FirstEnergy is focused on lowering its emission levels and undertook initiatives to that end. As of Feb 29, 2020, it achieved an 80% reduction in its CO2 emissions from the 2005 base line. Other electric utilities like Alliant Energy Corporation LNT, CMS Energy Corporation CMS and Pinnacle West Capital PNW are also making sustained efforts to expand their renewable portfolio alongside reducing toxic emissions.


However, FirstEnergy still possesses coal-fired generating plants that are required to comply with the federal, state and local environmental statutes, thereby elevating its costs. Thus, a likely increase in the compliance costs might affect the company’s profitability. The risks related to unplanned outages and an unexpected delay in completing the ongoing capital project remain headwinds.

Zacks Rank & Price Performance

The stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past three months, shares of the company have lost 5.1% against the industry’s rise of 7.4%.


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