FE Down on Dividend & Earnings Revisions


FirstEnergy Corp.'s (FE) shares shed 3.2% closing at $31.13 per share on Jan 22, 2014. The decline was primarily due to the market's negative response to FirstEnergy’s decision to lower its quarterly dividend rate and narrow its 2013 operating earnings guidance.

The board of directors of FirstEnergy decreased its quarterly dividend rate by 34.5% to 36 cents per share from the previous rate. On an annualized basis, new dividend rate will be $1.44 per share. The new annual dividend yield will be 4.6%, which will be higher than the industry average of 2.2%. The revised dividend will be paid on Mar 1, 2014, to shareholders of record as of Feb 7.

The company intends to retain the funds to meet its long-term capital requirements for regulated operations while managing current market conditions as well as increased government regulations. We believe this initiative will help FirstEnergy to maintain its future fund needs.

In addition, FirstEnergy narrowed its 2013 operating earnings guidance in the range of $2.95 - $3.05 per share from the earlier projection of $2.90 - $3.10 per share.

FirstEnergy provided 2014 operating earnings guidance in the range of $2.45 - $2.85 per share, lower than the 2013 earnings projection.

We note that FirstEnergy has already taken several initiatives including reduction in operating and maintenance expenses as well as planned sale of generating assets. However, a stalemate in load growth at the company’s utilities as well as decreasing energy prices resulting from a multi-year economic downturn has forced the company to revise its 2013 operating earnings guidance. Moreover, an increase in allocation for storm related expenses and delay in expected recovery casts shadow on the company’s future results.

In the coming four years, FirstEnergy plans to invest approximately $4.2 - $4.6 billion as transmission capital expenditure. The company intends to deploy a major chunk of the fund for the maintenance of its existing assets, thereby providing uninterrupted services to its customers.

FirstEnergy currently has a Zacks Rank #3 (Hold). However, some better-ranked stocks in the same sector include Wisconsin Energy Corp. (WEC), The AES Corp. (AES) and ALLETE, Inc. (ALE). While Wisconsin Energy holds a Zacks Rank #1 (Strong Buy), The AES Corp. and ALLETE carry a Zacks Rank #2 (Buy).

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