We are retaining our neutral stance on FirstEnergy Corporation (FE) due to the uncertainty in the regulatory environment, fluctuation of commodity prices and potential customer migration in Ohio.
Counting among the positives, the FirstEnergy and Allegheny Energy merger has created one of the largest energy companies with 10 regulated electric distribution companies operating in 7 states. The strong performance of its generation fleet, a robust balance sheet, share repurchases, prudent asset divestitures and solid dividend payout are also positives.
However, these positives could well be over shadowed by our expectation of softer power prices in the near term. The slowly-growing economy makes us a little more cautious on the company.
Currently the Zacks Consensus Estimates for 2011 and 2012 are $3.14 and $2.97, respectively.
Fourth Quarter and Full Year Recap
A quick recap of fourth quarter and fiscal 2010 results shows disappointing performance. Total revenue of $3.2 billion in the fourth quarter and $13.3 billion in the fiscal year failed to meet the corresponding Zacks Consensus expectations.
The bottom line followed the same trend as revenue with earnings of 70 cents per share in the fourth quarter as well as $3.61 per share in fiscal year 2010 lagging the respective Zacks Consensus estimates.
Our view
We believe the merger of FirstEnergy with Allegheny Energy can be a big positive for the company, provided that it can achieve substantial merger synergies in the year to come.
FirstEnergy currently retains a Zacks #3 Rank (short-term Hold rating). The company competes with Dominion Resources Inc. (D)
Based in Akron, Ohio, FirstEnergy is involved in the generation, transmission, and distribution of electricity, as well as offers energy management and other energy-related services.
DOMINION RES VA (D): Free Stock Analysis Report
FIRSTENERGY CP (FE): Free Stock Analysis Report
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