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FirstEnergy's Residential Users, Investment to Aid Earnings

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FirstEnergy Corporation’s (FE - Free Report) expanding regulated base and increasing transmission lines are likely to enhance earnings. Also, the company’s favorable liquidity position will help it meet near-term debt obligations.

For 2020, the company’s earnings estimates have been intact at $2.49 per share in the past 60 days. Additionally, FirstEnergy has a trailing four-quarter earnings surprise of 6.37%, on average.

What’s Driving the Stock?

FirstEnergy’s efforts to expand its regulated generation mix support its earnings trajectory. The transmission and distribution operations of the company are spread across 65,000 square miles in six states.The utility’s rate structure also provides stability during an economic turmoil.

Furthermore, owing to stay-at-home orders, FirstEnergy is experiencing a hike in residential demand. Remarkably, the company’s 65% distribution revenues are generated from residential customers, which will help it offset the decline in other customer groups’ demand due to the coronavirus outbreak.

This utility player reaffirmed its long-term CAGR projection of 6-8% for operating earnings during the 2018-2021 forecast period and extended the same to 5-7% through 2023. The company’s strategic investment in strengthening its transmission and distribution lines will help it serve its six million customers more efficiently.

FirstEnergy is focused on lowering its emission levels and undertook initiatives to that end. As of Feb 29, 2020, it achieved an 80% reduction in CO2 emissions from the 2005-level. Moreover, the company boasts a stable rating, given by reputed agencies. Also, its liquidity of $3.5 billion over the next 12 months will aid it to service its short-term debts.

Woes

However, FirstEnergy still has coal-fired generating plants, which have to comply with the federal, state and local environmental statutes, thereby flaring up its costs. Thus, a likely increase in the compliance costs might affect the company’s profitability.

Zacks Rank & Price Performance

The stock currently has a Zacks Rank #3 (Hold).

In the past six months, shares of the company have lost 42.5% compared with the industry’s decline of 17.2%.

Stocks to Consider

A few better-ranked electric utilities are Portland General Electric Company (POR - Free Report) , Korea Electric Power Corporation (KEP - Free Report) and Huaneng Power International, Inc. , all carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Portland General Electric Company delivered an earnings surprise of 7.74%, on average, in the last four quarters. The company has a long-term (three-five years) earnings growth rate of 5.14%.

Korea Electric Power has a long-term earnings growth rate of 5%. The Zacks Consensus Estimate for 2020 earnings has been steady in the past 60 days.

Huaneng Power International has a long-term earnings growth rate of 13.14%. The Zacks Consensus Estimate for 2020 earnings has been revised 24.4% upward in the past 60 days.

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