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FirstEnergy's Systematic Capital Investments Bode Well

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FirstEnergy’s (FE - Free Report) growing regulated base and distribution & transmission lines are expected to drive earnings while strategic investments are tailwinds to the company.

The company delivered positive earnings surprise in the last reported quarter.

What’s Driving the Stock?

FirstEnergy’s efforts to expand its regulated generation mix lent stability to the company’s earnings trajectory. The transmission and distribution operations of FirstEnergy are spread across 65,000 square miles in five states.

The company is well positioned to manage its operation despite the economic slowdown amid the coronavirus outbreak, as 65% distribution revenues is generated from residential customers. Moreover, the company’s rate structures provide a cushion of stability, even during this crisis. It is also expecting higher residential demand as all states are operating under stay-at-home orders.

The company’s strategic investment will help it serve its six million customers more efficiently. The company reaffirmed its long-term CAGR projection for operating earnings in the range of 6-8% from 2018 through 2021 and extended it to 5-7% through 2023.

FirstEnergy’s long-term debt and other obligations for the long haul were $20,821 million as of Mar 31, 2020, higher than $19,618 million as of Dec 31, 2019.The company is likely to have liquidity of $3.5 billion over the next 12 months that will suffice meeting its short-term obligation the near future.

However, the company still has coal-fired generating plants, which are liable to incur more cost as compliance to federal, state and local environmental statutes for rules and regulations. Legal obligations will likely impose substantial additional costs, which will affect the company’s profitability.

Zacks Rank & Price Performance

The stock holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 12 months, shares of the company have lost 4.8% compared with the industry’s decline of 6.7%.

Other Stocks to Consider

Few other top-ranked stocks from the same sector are Atmos Energy Corporation (ATO - Free Report) , Sempra Energy (SRE - Free Report) and NextEra Energy, Inc. (NEE - Free Report) . All these stocks currently hold a Zacks Rank #2.

Long-term earnings growth of Atmos Energy, Sempra Energy and NextEra Energyis pegged at 7.20%, 6.90% and 7.70%, respectively.

Atmos Energy, Sempra Energy and NextEra Energy pulled off a positive earnings surprise of 52%, 32.76% and 7.69%, respectively, in the last reported quarter.

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