Risk, Reward Balanced at FirstEnergy Corp.


On Apr 11, we have issued an updated research report on FirstEnergy Corp. (FE). The diversified utility company engages in the generation, transmission and distribution of electricity, and energy management and other energy-related services. FirstEnergy continues to maintain a stable financial position, which enables it to expand its operations. The addition of new assets and modernizing technologies will subsequently enable the company to serve increasing customer base. However, strict government regulations and volatility in fuel prices might challenge the company’s future performance.

FirstEnergy, a Zacks Rank #3 (Hold) stock, reported mixed result in fourth-quarter 2013. The quarter’s earnings surpassed the Zacks Consensus Estimate while revenues missed the same. However, quarterly earnings decreased from the year-ago level. Top line improved year over year primarily on the back of strong performance of the regulated and competitive energy services segments.

FirstEnergy is currently taking several initiatives, including installation of smart meters and expansion of power generation volume and transmission portfolio. In addition, the company is progressing well under its Smart Grid Modernization Program, thereby providing better services to its customers.

FirstEnergy’s stable liquidity position, including $0.22 billion in cash and around $3.4 billion available fund under the short-term borrowings, supported its growth ventures.

Apart from expanding operations, FirstEnergy is also divesting its assets to streamline operations and reduce growing debts. In Feb 2014, the company sold 527-megawatt of hydro assets.

In addition, FirstEnergy is also following a cost-cutting initiative. The company is reducing size of the fleet and altering mix of the assets to focus more on oil and gas, nuclear and renewable sources. These initiatives will allow the company to boost its future margins.

However, FirstEnergy’s operations are exposed to environment related regulatory risks as it generates a major portion of electricity from its coal and nuclear-fired assets. Changes in environmental guidelines could impact the company’s financial performance.

Key Picks from the Sector

Other better-ranked stocks in the utility sector include NRG Energy, Inc. (NRG), Otter Tail Corporation (OTTR) and Public Service Enterprise Group Inc. (PEG). All the stocks carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on FE
Read the Full Research Report on NRG
Read the Full Research Report on PEG
Read the Full Research Report on OTTR

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