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FirstEnergy (FE) Gains From Investments & Clean Energy Goals

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FirstEnergy Corporation’s (FE - Free Report) expanding regulated base and increasing transmission lines are expected to boost its earnings. Also, the company’s efforts to reduce emission levels are likely to be beneficial in the future.

The Zacks Consensus Estimate for 2021 earnings is pegged at $2.52 per share, indicating growth of 5.44% from the year-ago reported figure. Also, the consensus mark for current-year revenues stands at $11.14 billion, suggesting 3.21% growth from the prior-year reported number.

What’s Driving the Stock?

FirstEnergy’s efforts to expand its regulated generation mix lent consistency to its long-term earnings. The utility’s transmission and distribution operations are spread across 65,000 square miles in six states and its rate structure provides stability during an economic crisis.

The breakout of COVID-19 induced an unprecedented economic crisis reducing demand from commercial and industrial space. But owing to the revival of economic activities, demand from the same might improve in the ongoing year. Also, the company generates nearly 65% of its distribution revenues from its residential customers. Demand from such clients is steadily increasing on extended stay-at-home directives. This is likely to strengthen the company’s prospects in this difficult phase.

The utility player reaffirmed its long-term CAGR projection of 6-8% for operating earnings during the 2018-2021 forecast period and expected the same to be 5-7% for the 2022-2023 time frame. The company’s investment in strengthening its transmission and distribution lines will enable it to serve its six million customers more efficiently. The utility anticipates investment up to $2.9 billion in reinforcing its transmission and distribution network during 2021.

FirstEnergy is focused on lowering its emission levels and undertook initiatives to that end. In November 2020, it updated its target to become net carbon neutral by 2050. Other electric utilities like Alliant Energy Corporation (LNT - Free Report) , CMS Energy Corporation (CMS - Free Report) and Pinnacle West Capital (PNW - Free Report) are also making sustained efforts to expand their renewable portfolio alongside reducing toxic emissions.

Woes

However, FirstEnergy still possesses coal-fired generating plants that are required to comply with the federal, state and local environmental statutes, thereby elevating its costs. Thus, a likely increase in the compliance costs might affect the company’s profitability. The risks related to unplanned outages and an unexpected delay in completing the ongoing capital project remain headwinds.

Zacks Rank & Price Performance

The stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past three months, shares of the company have gained 12.6% outperforming the industry’s rise of 10.7%.

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