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.
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.
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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Strong operations of the company in the US
Strong residential customer base
Dependence on third parties for transmission and distribution
Lack of geographical diversification
Dependency on coal-fired generation
Risk associated with nuclear generation
System upgrades for system efficiency
Development of transmission lines
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