FirstEnergy (FE) wins on investment in aging infrastructure

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First energy company FE has benefited from its transition to become a fully regulated utility company and systematic investments to strengthen infrastructure. Effective debt management and the ‘Energizing the Future’ plan to expand transmission capacity are likely to boost its long-term performance.

However, the breakdown or failure of equipment or processes due to aging infrastructure can negatively impact profitability. FirstEnergy currently carries a Zacks rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

FirstEnergy’s long-term (three to five years) earnings growth is currently pegged at 6.7%. Zacks consensus estimate for 2023 earnings per share (EPS) suggests growth of 5.3% from the estimated 2022 figure. Additionally, FE’s current dividend yield of 4% is better than the industry average of 3.2%.

Tailwinds

Strategic investments help FirstEnergy serve its six million customers more efficiently. In recent years, the regulated distribution segment has experienced growth in its rate base through systematic investments.

FE plans to invest $17 billion over the 2021-2025 period, of which $8.6 billion will be dedicated to network modernization and increased resilience, $1.7 billion to conservation and $6.5 billion to clean energy transition and customer-centric growth projects. Reinforcement of transmission assets will allow the company to transmit electricity even in adverse weather conditions.

FirstEnergy’s long-term debt and other long-term obligations at June 30, 2022 were $20,763 million, down 6.7% from $22,248 million at December 31, 2021. multiplied by interest earned (EIR) at the end of Q2 2022 was 2.4. A TIE greater than one reflects the company’s ability to honor its debts in the near future without difficulty.

FirstEnergy focuses on reducing emission levels and has undertaken initiatives in this direction. In November 2020, it had updated the target to become 100% carbon neutral by 2050, with a mid-term target of a 30% reduction in greenhouse gases under direct operational control by 2030 compared to the level of 2019. In addition, it plans to electrify 30% of the vehicle fleet by 2030 and another 100% by 2050.

Headwinds

Although FirstEnergy continues to invest in development opportunities to strengthen its transmission operations, timely completion of projects within budget may not be possible.

Existing coal-fired power plants, the breakdown or failure of equipment or processes due to aging infrastructure, and the adverse impact of extreme weather conditions may reduce energy deliveries, impacting operating results and financial. To meet stringent rules and regulations and maintain cybersecurity, FirstEnergy must incur additional costs.

Price performance

Over the past three months, shares of FirstEnergy have risen 2.6% against the industry’s decline of 3.3%.

Image source: Zacks Investment Research

Actions to Consider

Some higher ranked stocks in the same sector include The AES company AES, AVANGRID Inc. IGA and Alliant Energy Corporation LNT, each wearing a No. 2 (buy) Zacks rank.

Long-term (three to five years) earnings growth rates for AES, AVANGRID and Alliant Energy are projected at 8.3%, 5.9% and 6.2%, respectively.

The Zacks consensus estimate for 2022 EPS of AES, AVANGRID and Alliant Energy rose 5.9%, 5.1% and 6.5%, respectively, year-over-year.

AES, AGR and LNT have recorded surprising average profits of 4.2%, 17.9% and 5.8%, respectively, over the past four quarters.

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FirstEnergy Corporation (FE): Free Inventory Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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