On Jan 2, 2015, we issued an updated research report on FirstEnergy Corp. (FE). A growing transmission business and a modest improvement in the economy of FirstEnergy’s service territories are expected to boost earnings going forward. However, the Environment Protection Agency’s (“EPA”) Clean Power Plan proposal, which aims at lowering carbon emissions, might impact its coal-fired electricity producing units.
Akron, OH based FirstEnergy has expanded its regulated generation mix substantially from 2009 levels. This has lent more stability to the company’s earnings trajectory.
Growth and stability in FirstEnergy’s earnings could be amplified by signs of economic recovery. This is evident from the unemployment rate across the company’s service territories Pennsylvania, Virginia, Ohio and Maryland declining below the national average of 5.8%.
Moreover, driven by the shale gas boom, this utility projects an increase in the electric load growth in its service areas. For that purpose, the company intends to spend $4.2 billion for expanding transmission lines within a time span of 2014 to 2017 to service additional load growth.
In Dec 2014, FirstEnergy announced it will undertake new transmission projects worth $100 million and assess the upgrade of additional systems in West Virginia’s Marcellus Shale gas industry. More recently FirstEnergy completed new transmission projects worth $6 million in its subsidiary, Ohio Edison’s service area (read: FirstEnergy Concludes Another Ohio Transmission Project).
On the flip side, proposals for promoting clean energy by the EPA and a competitive wholesale and retail electric market could put pressure on the company’s bottom line.
In the third quarter of 2014, FirstEnergy’s earnings surpassed the Zacks Consensus Estimate, but lagged the year-ago earnings. The top line missed the Zacks Consensus Estimate of $4.7 billion by nearly 17.1% and declined 3.1% year over year.
Zacks Rank
FirstEnergy currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the electric utility space include Huaneng Power International, Inc. (HNP) and PG&E Corporation (PCG), sporting a Zacks Rank #1 (Strong Buy) and Atlantic Power Corporation (AT), carrying a Zacks Rank #2 (Buy).
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