On Wednesday, KeyBanc Capital Markets maintained its Overweight rating and $43.00 price target for FirstEnergy Corp. (NYSE: NYSE:FE). The energy company recently submitted its Ohio general rate case, proposing a $94 million net revenue increase. This request is relatively modest due to the significant balances from established riders that FirstEnergy is aiming to incorporate into its base rates.
The recent filing is particularly noteworthy as it will undergo rigorous scrutiny ahead of the June 14 deadline for FirstEnergy's supporting testimony. The case represents a critical test of the Ohio regulatory climate, especially in the aftermath of the House Bill 6 scandal and following a lengthy period without such rate cases. The results of this case are expected to have significant implications for FirstEnergy's long-term growth and stability.
FirstEnergy's management has been recognized for its ability to execute strategic plans and secure favorable regulatory outcomes. This rate case is seen as one of the final steps in the company's regulatory "reset." KeyBanc's perspective is that the filing, along with the company's track record, suggests that FirstEnergy's shares are currently undervalued.
The outcome of the rate case is anticipated to contribute substantially to FirstEnergy's efforts to establish a sustainable growth trajectory. With the filing now in the hands of regulators, stakeholders are looking forward to the June 14 deadline for further developments in this pivotal case. KeyBanc's reiteration of the Overweight rating and the $43 price target reflects confidence in FirstEnergy's future performance.
In other recent news, FirstEnergy Corp has been in the spotlight for its financial developments. The company's first quarter 2024 earnings call reported operating earnings of $0.55 per share, exceeding guidance expectations. Despite a decrease in GAAP earnings from $0.51 to $0.44 per share compared to the same quarter last year, FirstEnergy affirmed a long-term operating growth rate of 6% to 8%. The company also announced an increased quarterly dividend and a planned capital expenditure (CapEx) of $4.3 billion for 2024, indicating a focus on grid modernization and infrastructure.
In addition to its earnings results, FirstEnergy recently filed its anticipated Ohio distribution rate case, seeking a modest rate increase of approximately 1.6% across its three Ohio utilities. This is the first update in over a decade and a half for the rates of its Ohio utilities. The requested 10.8% return on equity (ROE) is a slight step up from the previous 10.5%, and the equity ratio has also been increased from 49% to 55%.
Mizuho has reacted to these developments by increasing the price target for FirstEnergy shares to $41 from $38, while maintaining a Neutral rating on the stock. The firm's analyst cites market multiples as the basis for the new price target. These recent developments indicate a focus on financial growth and structural improvement for FirstEnergy.
InvestingPro Insights
As FirstEnergy Corp. (NYSE: FE) navigates through the critical period of its Ohio general rate case, the company's financial metrics and analyst optimism provide a framework for investors to gauge its potential. InvestingPro data reveals a market capitalization of $22.89 billion, with a P/E ratio standing at 21.52, which adjusts to a slightly lower 20.57 when considering the last twelve months as of Q1 2024. Despite the modest revenue growth of 1.85% over the same period, FirstEnergy boasts a robust gross profit margin of 68.61%, indicating efficient operations.
One of the InvestingPro Tips highlights that FirstEnergy operates with a significant debt burden, a factor that investors should consider when evaluating the company's financial health. However, the company has demonstrated a commitment to shareholder returns, maintaining dividend payments for 27 consecutive years, with a current dividend yield of 4.23%. Additionally, the stock is trading near its 52-week high, with a price 98.11% of that peak, reflecting market confidence.
Investors may also find reassurance in the fact that 3 analysts have revised their earnings upwards for the upcoming period, as per another InvestingPro Tip. This, coupled with the company's stock generally trading with low price volatility, suggests a stable investment profile in the near term. For those seeking a more comprehensive analysis, InvestingPro offers additional tips on its platform. Utilize the coupon code PRONEWS24 to receive an extra 10% off a yearly or biyearly Pro and Pro+ subscription, and explore the full range of insights available for FirstEnergy.
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