FirstEnergy Corp.

(New York Stock Exchange)
Back to all articles
Somewhat Bearish -45

How Analysts and Investors See FirstEnergy and AEP After Regulatory News

AI-generated analysis

πŸ“‰ FirstEnergy shares plummeted 10.25% to $32.35 after news of a federal regulatory review regarding Ohio power plant contracts.

πŸ’° The company reported Q1 operating earnings of $0.80 per share, beating the previous year's $0.62 despite mild weather and higher financing costs.

πŸ“‰ Jefferies downgraded FirstEnergy from Buy to Hold with a price target cut to $35 due to FERC rescinding the Ohio PPA.

πŸ“‰ Barclays downgraded FirstEnergy to Equal Weight and lowered its price target to $33 following the regulatory uncertainty.

πŸ“‰ RBC Capital Markets downgraded FirstEnergy to Sector Perform, reducing its target price to $33 from $38.

πŸ“‰ S&P Capital IQ downgraded FirstEnergy to Hold but raised its target price to $37 due to higher peer valuations.

πŸ’Έ Analysts anticipate potential equity issuances of approximately $2.0 billion to support the company's balance sheet amid the regulatory setback.

πŸ“‰ EPS estimates for 2016 and 2017 were trimmed by $0.01 each to $2.83 and $2.69 respectively due to earnings pressure.

βš–οΈ Regulators are reviewing contracts granted guaranteed rates last month, which competitors argued constituted a consumer-funded bailout.

πŸ›οΈ FirstEnergy plans to file requests to FERC arguing the Ohio PPAs are valid under Section 205 of the Federal Power Act.

πŸ“ˆ Bank of America Merrill Lynch maintains a Buy rating with a $44 price objective, viewing current valuations as underappreciated.

πŸ’Ή The dividend yield has increased to just under 4.50% following the sharp drop in share price.

Bullish Signals
  • FirstEnergy reported a positive first-quarter operating earnings beat of $0.80 per share compared to $0.62 a year ago.
  • Bank of America Merrill Lynch maintains a Buy rating on FirstEnergy, believing current valuations underappreciate the company's transition to a regulated-only business model.
  • S&P Capital IQ raised its price target to $37 despite downgrading the rating, citing higher peer valuations and a discount to peers.
  • The dividend yield has rebounded to just under 4.50% following the stock's sharp decline in late morning trading.
Risk Factors
  • FirstEnergy shares dropped 10.25% to $32.35 on news that it faces a federal regulatory review of Ohio power plant contracts.
  • Jefferies downgraded the stock from Buy to Hold and cut its price target to $35 due to the loss of PPA earnings.
  • Barclays downgraded FirstEnergy to Equal Weight and lowered its price target to $33 following the regulatory uncertainty.
  • RBC Capital Markets downgraded FirstEnergy to Sector Perform and reduced its target price to $33 from $38.
  • Analysts anticipate a need for approximately $2.0 billion in equity issuances to support the company's balance sheet.
  • S&P Capital IQ trimmed 2016 and 2017 EPS estimates by $0.01 each due to expected pressure on future earnings.
  • The regulatory review involves contracts granted guaranteed rates for coal-fired and nuclear plants that competitors labeled a consumer-funded bailout.
Full Analysis
FirstEnergy Corp. (NYSE: FE) experienced a sharp decline in its stock price, dropping 10.25% to $32.35 on Thursday, following news that the company and American Electric Power are facing a federal regulatory review of their Ohio power plant contracts. This negative market reaction occurred despite FirstEnergy reporting a positive first-quarter operating earnings beat of $0.80 per share compared to the prior year, driven by higher commodity margins and resolved rate cases. The regulatory uncertainty stems from reports that U.S. regulators fear customers are captive regarding these contracts, which were previously granted guaranteed rates for coal-fired and nuclear plants. Analysts interpret this development as a significant setback, with several major firms downgrading their ratings on FirstEnergy due to the potential loss of earnings associated with the Power Purchase Agreements (PPAs) and the need for equity issuances to support the balance sheet. Wall Street analysts have collectively lowered their price targets and outlooks for FirstEnergy. Jefferies cut its rating to Hold and target to $35, citing the loss of PPA earnings. Similarly, Barclays downgraded the stock to Equal Weight with a $33 target, while RBC Capital Markets and S&P Capital IQ also reduced their ratings or estimates, reflecting concerns over future earnings pressure and regulatory delays. Despite the immediate negative sentiment, some analysts like Bank of America Merrill Lynch maintain a Buy rating, viewing the current valuation as underappreciated given the companies' transition toward becoming purely regulated utilities. The article notes that while the approval process will cause delays, the outcome could potentially initiate a legislative push for a hybrid model, though FirstEnergy remains focused on its regulated-only business strategy.