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We reaffirm our Neutral recommendation on Ohio utility major FirstEnergy Corporation (FE - Analyst Report). The company posted mixed outcomes in the third quarter 2012 with the top-line falling short of the Zacks Consensus Estimate while the bottom-line beating it.

We believe the company’s multiple ventures in Ohio like the non-binding contract with American Municipal Power for the construction and development of an 873 megawatt natural gas peaking facility and the proposed building of an eco-friendly transmission control center will support its business growth goals.

However, weather variations especially winter storms and regulatory obligations are possible negative near-term triggers that might upset the company’s top-line progress.

FirstEnergy’s rise in customer count by 42% in the third quarter 2012 is impressive and we anticipate the addition of 43 new communities in Ohio and 81 communities in Illinois will augment the company’s near-term earnings flow. Moreover, a sound hedging profile is expected to reassure stable returns in the upcoming quarters.

FirstEnergy’s competitive energy business is hedged at a respective 99% and 78% for the rest of 2012 and for 2013.

Nonetheless, the ongoing stalemate in the U.S. macro-environment could constrain the company’s growth potential with price sensitivities being a recurring risk. FirstEnergy presently retains a short-term Zacks #3 Rank (Hold rating).

The Zacks Consensus Estimates for the fourth quarter and full year 2012 currently stand at 85 cents and 3.34 per share, respectively.

FirstEnergy’s pro forma earnings expectation for 2012 is expected to be in the band of $3.30 to $3.40 per share. Operating earnings for 2013 are expected in the range of $2.85 to $3.15 per share.

Another Zacks #3 Ranked utility player, NextEra Energy Inc. (NEE - Analyst Report) is also looking to improve its natural gas prospects in Florida. The company recently disclosed its plans for the construction of a natural gas pipeline to supply more power to its Florida customers.

With a market capitalization of $17.42 billion, FirstEnergy has 20,000 employees. Headquartered in Akron, the company through its subsidiaries engages in the generation, transmission, and distribution of electricity.
 

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