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FirstEnergy's Investments to Support Earnings Despite Coronavirus

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

For 2020, the company’s earnings estimates have remained unchanged at $2.49 per share in the past 30 days. Additionally, FirstEnergy has a trailing four-quarter positive earnings surprise of 5.87%, on average.

What’s Driving the Stock?

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

The company’s rate structure provides stability during economic turmoil. Furthermore, owing to stay-at-home orders, FirstEnergy is expecting 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.

FirstEnergy 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 lineswill help it serve its six million customers more efficiently.

Moreover, FirstEnergy boasts a stable rating, given by rating agencies. The company’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 but its liquidity of $3.5 billion over the next 12 months will aidit to meet its short-term debt load.

However, FirstEnergy still has coal-fired generating plants, which have to comply with the federal, state and local environmental statutes for rules and regulations, thereby flaring up the costs. Thus, increase inlegal 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 18.1% compared with the industry’s decline of 11.5%.


Stocks to Consider

A few better-ranked electric utilities are Companhia Paranaense de Energia COPEL (ELP - Free Report) , NextEra Energy (NEE - Free Report) and Vistra Energy Corp. (VST - Free Report) , all presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Companhia Paranaense de Energia COPEL pulled off average positive earnings surprise of 80% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved 11.6% north in the past 60 days.

NextEra Energy delivered average positive earnings surprise of 2.39% in the trailing four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up marginally in the past 60 days.

Vistra Energy came up with average positive earnings surprise of 5.59% in the previous four quarters. The Zacks Consensus Estimate for 2020 earnings has been revised 14.8% upward in the past 60 days.

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