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FirstEnergy's Solid Residential Demand & Investments Bode Well

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

For 2020, the company’s earnings estimates have moved 0.4% north to $2.50 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 utility are spread across 65,000 square miles in six states. Its rate structure also provides stability during an economic turmoil.

Furthermore, owing to stay-at-home orders, FirstEnergy is experiencing an increase 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 outbreak of novel coronavirus.

The utility 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 enable it to serve its six million customers more efficiently. It aims to spend nearly $17.6 billion on reinforcing its transmission and distribution network in the 2018-2023 time period.

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 its CO2 emissions from the 2005-level. Apart from the company, other electric utilities like Alliant Energy Corporation (LNT - Free Report) , CMS Energy Corporation (CMS - Free Report) and Pinnacle West Capital (PNW - Free Report) are making sustained efforts to expand their renewable portfolio along with reducing emissions.

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.

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