COMPANY DESCRIPTION

FirstEnergy Corporation (FirstEnergy or the company) is a diversified energy company. It engages in the generation, transmission, and distribution of electricity and energy management; and is also a provider of energy-related services. The company’s 10 utility operating companies comprise the nation’s largest investor-owned electric system based on six million customers served within a nearly 65,000-square-mile area of Ohio, Pennsylvania, Maryland, West Virginia, New Jersey, and New York. FirstEnergy is headquartered in Akron, Ohio.

 

ECONOMIC MOAT

In our opinion FE moat is dug from a combination of regulated distribution utilities, high-voltage electric transmission, retail electricity marketing, and wholesale power generation.  FE’s 10 regulated distribution utilities, representing about 70% of earnings in 2015.

 

OUTLOOK

FirstEnergy has made progress in some of its regulatory matters. The utility's allowed return on equity in this business is now 12.38%, but this might be lowered.  In 2016 FE should be able to provide a dividend hike.  However, we think the disbursement won't approach its previous $2.20-a-share level, even over the 3- to 5-year period. Earnings should return to a more normal level this year, followed by a modest increase in 2016. FirstEnergy's earnings growth will probably be driven by its regulated utility operations. The dividend yield of this stock is a bit above the utility average. The recent stock price is above the midpoint of our 2018-2020 expectations.

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STRENGTHS

  • Strong operations of the company in the US

  • Strong residential customer base 

WEAKNESSES

  • Dependence on third parties for transmission and distribution

  • Lack of geographical diversification

  • Dependency on coal-fired generation 

THREATS

  • Intense competition

  • Operational risk

  • Risk associated with nuclear generation 

OPPORTUNITIES

  • System upgrades for system efficiency

  • Development of transmission lines 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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