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Why Is FirstEnergy (FE) Up 4.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for FirstEnergy (FE). Shares have added about 4.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is FirstEnergy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

FirstEnergy Beats Q2 Earnings, Lags Revenue Estimates

FirstEnergy delivered second-quarter 2019 operating earnings of 61 cents per share, which beat the Zacks Consensus Estimate of 60 cents by 1.67%. The quarterly figure fell 1.61% from the year-ago quarter’s earnings of 62 cents.

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On a GAAP basis, the company generated earnings of 58 cents, up from earnings of 28 cents in the prior-year quarter.

Total Revenues

FirstEnergy generated total revenues of $2,516 million in the second quarter, which missed the Zacks Consensus Estimate of $2,843 million by 11.49%. The figure declined from $2,625 million in the year-ago quarter.

Highlights of the Release

Lower operating expenses, income taxes and net financing costs drive performance in the Regulated Distribution business. However, it was offset by lower distribution deliveries, primarily stemming from milder-than-expected spring and higher depreciation expenses. This caused the segment’s revenues to decline year over year.

Total electric delivery fell 5.5% in the second quarter on a year-over-year basis. Residential sales declined 9.7% year over year. Commercial and industrial sales fell 5.6% and 1.7% year over year, respectively.

Higher rate base from continued investments in the Energizing the Future initiative and lower tax rate boosted Regulated Transmission business earnings in the quarter under review.

Financial Update

FirstEnergy's cash and cash equivalents as of Jun 30, 2019 were $422 million, up from $367 million as of Dec 31, 2018.

Long-term debt and other long-term obligations as of Jun 30, 2019 were $19,053 million compared with $17,751 million as of Dec 31, 2018.

Net cash provided from operating activities in the first six months of 2019 was $625 million against $288 million used in the first six months of 2018.

Guidance

The company expects 2019 EPS in the range of $2.45-$2.75, whose mid-point of $2.60 is higher than the current Zacks Consensus Estimate of $2.53. Also, the company affirmed third-quarter 2019 earnings guidance in the range of 68-80 cents.

Notably, the company provided expected GAAP 2019 EPS in the range of $2.34-$2.64.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, FirstEnergy has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, FirstEnergy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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Zacks Investment Research