We retain our Neutral recommendation on FirstEnergy Inc. (FE - Analyst Report). The utility service provider currently carries a Zacks Rank #3 (Hold).
Why the Reiteration?
FirstEnergy reported mixed financial results in the first quarter of 2013 with earnings beating our expectation while revenue trailing it. The reiteration also takes into consideration strict pro-environment laws that will challenge the company’s coal powered generation business.
We, nevertheless, believe FirstEnergy’s efforts to strengthen its energy marketing business will boost profitability. The strategy to shift to higher value retail channels will contribute to stable margins.
Furthermore, FirstEnergy’s string of infrastructure modernization projects will improve its power service quality which will lead to customer retention. These efforts might also aid in attracting new customers to the company’s services thereby expanding its customer portfolio.
Meanwhile, its upgrade initiatives will be put to test given the severe storms that are expected in the coming months as projected by the National Oceanic Atmospheric Administration.
FirstEnergy maintained its earnings guidance range of $2.85 to $3.15 per share for 2013 reflecting its confidence in the investments made in transmission assets. However, we believe the still recovering U.S. economy will keep electric prices at a moderate level which will affect the company's revenue position.
The Zacks Consensus Estimate projects a 10.3% year-over-year decline in 2013 earnings to $2.99 per share from $3.33 per share in 2012.
Other Stocks to Consider
Other utility industry players looking good at the moment are Zacks Ranked #2 (Buy) ALLETE Inc. (ALE - Snapshot Report), Black Hills Corporation (BKH - Snapshot Report) and DTE Energy Company (DTE - Analyst Report).