FirstEnergy (FE) Gains On Long-term Investment Outlook

On Jun 22, 2017, we issued an updated research report on FirstEnergy Corporation (NYSE:FE) . The company's efforts to expand its regulated generation mix have added to its earnings trajectory. First Energy’s broadening regulated base and its focus on upgrading and growing transmission lines are expected to boost earnings.

FirstEnergy received a handful of regulatory approvals for base rate increase. In Pennsylvania, the company received approval of rates case settlements for Met-Ed, Penelec, Penn Power and West Penn Power. With this approval its annual Distribution revenue is expected to increase about $290 million.

In New Jersey, the approved settlement for JCP&L is expected to generate an annual Distribution revenue increase of $80 million. In Ohio, the company is on track to collect nearly $200 million annually for at least three years and up to five years under the Ohio Distribution Modernization Rider. All these new settlements are likely to boost its 2017 top-line.

FirstEnergy has been focusing on boosting its service reliability which will lead to customer retention. This has led to its ambitious “Energizing the Future” plan which is aimed at upgrading and expanding its regulated transmission capabilities. As a part of this plan FirstEnergy has plans to invest nearly $1 billion in 2017 and $4.2 billion over the 2014–2017 time period.

In the last one month, shares of FirstEnergy have gained 2.4% outperforming Zacks categorized Utility - Electric Power Industry gain of 1.4%. The focus on increasing service reliability and customer retention has boosted the performance to a great extent. The returns are in line with its peers like NiSource, Inc (NYSE:NI) and Avangrid, Inc. (NYSE:AGR) .

On the flip side, stringent regulatory norms and intense competition are some of the concerns for the company. A higher debt/capital ratio compared with peers and a drop in rating from the rating agency may further drive up its cost of capital in the rising interest rate environment.

Zacks Rank and Other Stock to Consider

FirstEnergy currently has a Zacks Rank #2 (Buy). A better ranked stock in the same space is RWE AG (OTC:RWEOY) sporting a Zaks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

RWE AG Zacks Consensus Estimate for 2017 moved up nearly 36.4% to $2.21 per share in the last 60 days. The company's long-term earnings are expeced to grow by 11.22%.

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