On Thursday, Scotiabank maintained its Sector Perform rating and $45.00 stock price target for FirstEnergy Corp. (NYSE:FE). Following discussions with the company's management, the bank's analysts have expressed confidence in FirstEnergy's fundamental outlook.
The energy company is recognized for its sound balance sheet, capital expenditure opportunities stemming from historical underinvestment, and relatively low customer rates. These factors are seen as beneficial in light of the supportive stance of regulators towards spending.
FirstEnergy is anticipated to experience above-average growth in earnings per share (EPS) and dividends per share (DPS), projected at 6%-8%. This growth is expected to be driven by a 9% increase in rate base, improved return on equity (ROE), and limited need for equity, thanks to refinancing of parent debt and diminishing earnings from Signal Peak. Despite these positive aspects, Scotiabank has chosen to maintain a neutral position on the stock due to a couple of significant risks.
The firm acknowledges the Ohio rate case is not expected to cause controversy; however, concerns remain that the stock may continue to be affected by the slow pace of the process and investor apprehension, potentially lasting another year. Moreover, while capital expenditure-related equity needs are minimal, the financial impact of the securities litigation is uncertain and could be substantial, with the possibility of remaining unresolved for an extended period.
Scotiabank sees the risk/reward balance for FirstEnergy as appealing for investors with long-term horizons but suggests that there may be more attractive short-term opportunities available in the market.
In other recent news, FirstEnergy Corp. has reported a combination of lower GAAP earnings and higher operating earnings for the second quarter of 2024. The company's GAAP earnings fell to $0.08 per share, a significant drop from $0.41 per share in the previous year. In contrast, operating earnings increased by 19% to $0.56 per share, attributed to rate adjustments, increased customer demand, and investments enhancing customer experience.
FirstEnergy also reached a settlement with the Ohio Attorney General and the Summit County Prosecutor's Office, resolving all pending disputes. This move is seen as a step forward for the company in rebuilding trust and maintaining commitments to stakeholders.
In addition to these developments, FirstEnergy is making significant investments through the Energize365 capital investment program. Regulatory proceedings are ongoing in Ohio, Pennsylvania, and New Jersey, marking another recent development. The company reaffirmed its 2024 operating earnings guidance of $2.61 to $2.81 per share, demonstrating confidence in its long-term earnings growth projections.
InvestingPro Insights
As FirstEnergy Corp. (NYSE:FE) continues to be a topic of interest for investors, recent data from InvestingPro provides a deeper look into the company's financial health and market performance. Notably, FirstEnergy maintains a consistent track record with dividend payments, having upheld them for 27 consecutive years, which aligns with Scotiabank's positive view on the company's dividend growth potential. This commitment to shareholders is bolstered by the company's strong return over the last three months, with a price total return of 15.39%, and a year-to-date increase of 24.4%, reflecting a robust performance in the market.
Furthermore, analysts have revised their earnings upwards for the upcoming period, signaling confidence in FirstEnergy's ability to grow its earnings per share. At the same time, the company is trading at a low P/E ratio relative to near-term earnings growth, with an adjusted P/E ratio for the last twelve months as of Q2 2024 standing at 26.03, and a PEG ratio at an attractive 0.32. These metrics suggest that FirstEnergy may be undervalued given its growth prospects, offering potentially compelling value to investors.
For those seeking additional insights and tips on FirstEnergy, InvestingPro offers more detailed analysis and metrics. There are currently 9 additional InvestingPro Tips available, which can be accessed at InvestingPro FirstEnergy to help investors make more informed decisions.
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