FirstEnergy (FE) to Gain From Investment on Infrastructure
FirstEnergy Corporation’s FE ongoing investments to strengthen transmission and distribution operations will increase reliability and improve customer service. The Energizing the Future initiative will add to its overall operational strength.
However, this Zacks Rank #3 (Hold) stock has to face risks related to timely completion of projects, regulations pertaining to coal-fired generation plants and increase in interest rates.
Tailwinds
The utility’s efforts to expand its regulated generation mix provided stability to its earnings trajectory. In the last few years, the company witnessed a successful broadening of regulated operations and a complete transition into a fully-regulated utility company.
FirstEnergy’s strategic investment will help it in serving its six million customers more efficiently. In the past several years, Regulated Distribution has experienced rate base growth through investments. The company’s ‘Energizing the Future’ plan is aimed at enhancing and expanding regulated transmission capabilities. FE plans to invest $11.4 billion in the 2023-2025 period to further strengthen its existing operations. During 2023-2025, the company expects to invest $5.9 billion in regulated distribution and $5.4 billion in regulated transmission.
The company is focused on lowering emission levels and has undertaken initiatives for the same. In 2015, FirstEnergy had set a goal of reducing CO2 emissions by at least 90% below the 2005 levels within 2045. FE aims to attain 100% carbon neutrality by 2050, with a mid-term goal of 30% reduction in greenhouse gases within the company's direct operational control by 2030 from the 2019 level. Also, it plans to electrify 30% of vehicle fleet by 2030 and 100% by 2050.
FirstEnergy’s board of directors approved a new dividend policy that increases targeted payout ratio to 60-70% from 55-65% previously. It also expects to increase dividend rate in late 2023, subject to the board’s approval.
Headwinds
FirstEnergy has to comply with environmental regulations for its coal-fired generating plants, which may result in additional expenses. Also, any delay in completion of projects, unfavorable weather and increase in interest rates are headwinds.
The company is focused on capitalizing on investment opportunities available for Regulated Transmission and Regulated Distribution segments to provide better services to customers. The success of these opportunities will depend, in part, on the successful recovery of its transmission and distribution investments. It expects a further rise in interest rates in 2023, which will increase the total project costs and decrease the desired profitability.
Stocks to Consider
Some better-ranked stocks from the same industry are CenterPoint Energy, Inc. CNP, NiSource Inc. NI and MGE Energy, Inc. MGEE, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for CenterPoint Energy, NiSource and MGE Energy’s 2023 earnings per share (EPS) indicates increases of 7.97%, 6.8% and 14.01%, respectively.
Long-term (three- to five-year) earnings growth of CenterPoint Energy, NiSource and MGE Energy is estimated at 7%, 6.8% and 4.22%, respectively.
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MGE Energy Inc. (MGEE) : Free Stock Analysis Report
