FirstEnergy (FE) Closes Sale of 30% Stake in FET to Brookfield
FirstEnergy Corporation FE recently announced the completion of its divestment of an additional 30% ownership interest in its FirstEnergy Transmission, LLC (“FET”) subsidiary to Brookfield Super-Core Infrastructure Partners (Brookfield). The transaction, worth $3.5 billion, should enable First Energy to make significant investments to boost its infrastructure, as well as customer reliability through delivering safe and resilient energy.
This transaction follows Brookfield’s purchase of a 19.9% ownership interest in FET for $2.4 billion in 2022. Upon closing, FirstEnergy will have completed approximately $7 billion in strategic equity financings at an equivalent share price of $87 per share, or 36x trailing 12-month price-to-earnings valuation since late 2021.
FE’s Focus on Infrastructure
FirstEnergy received $2.3 billion of cash proceeds at the closing of the recent deal, with the remaining $1.2 billion in interest-bearing notes due from Brookfield, which are expected to be paid off by the end of 2024. The proceeds from the transaction will be utilized to bolster FirstEnergy’s balance sheet and support its five-year, $26 billion Energize365 grid investment program.
The company aims to install advanced equipment and technologies that will strengthen and modernize its transmission and distribution infrastructure with the sale proceeds from the latest divestment. Strengthening the transmission and renewable generation assets will allow the company to transmit electricity even during adverse weather conditions and provide emission-free electricity to customers.
Peer Moves
In order to provide undisrupted electricity and associated services to customers, utilities make systematic investment to upgrade transmission and distribution lines and develop new substations. The objective is to warrant proper supply of electricity to millions of customers across their service territories.
Like FirstEnergy, other electric power companies like Xcel Energy XEL, Exelon Corporation EXC and Duke Energy DUK are also adopting measures to strengthen their existing infrastructure.
Xcel Energy aims to spend $39 billion during 2024-2028, out of which the company plans to invest nearly $22 billion in strengthening its electric distribution and transmission operations.
XEL’s long-term (three to five years) earnings growth rate is 6%. The Zacks Consensus Estimate for 2024 sales implies a year-over-year improvement of 7.4%.
Exelon invests substantially in infrastructure projects. It plans to spend nearly $34.5 billion during 2024-2027 in regulated utility operations. The company is going to invest $21 billion in electric distribution and $9.7 billion in electric transmission.
EXC’s long-term earnings growth rate is 5.7%. The stock boasts a solid four-quarter average earnings surprise of 2.64%.
Duke Energy remains focused on building generation and transmission to support growth and fleet transition. The company expects nearly $63.1 billion of investments during 2024-2028 in electric generation, transmission and distribution.
DUK’s long-term earnings growth rate is 5.3%. The Zacks Consensus Estimate for 2024 sales implies a year-over-year increase of 4.5%.
Price Performance
In the past three months, shares of FirstEnergy have gained 5.6% against the industry’s 3.5% decline.
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Zacks Rank
FirstEnergy currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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