Tags: FirstEnergy | buy | earnings | FE

FirstEnergy Buy Could Fuel Earnings

By    |   Thursday, 20 Oct 2011 02:08 PM

FirstEnergy’s (FE) purchase of Allegheny Energy early this year made it one of the country’s largest utilities. It has more than 23,000 megawatts of capacity and serves 6 million customers in Ohio, Pennsylvania, New Jersey, Maryland, and West Virginia. Now it has to turn that buy into earnings growth.

FirstEnergy divides into three units: regulated power distribution, regulated independent power transmission, and competitive energy services. The latter includes wholesale power generation and the company’s retail business. It has expanded much faster than the regulated areas of the business in recent years and now accounts for about half the company’s earnings.

Making money from all these operations isn’t a slam dunk. The wholesale business has to worry about unstable prices for commodities such as coal and natural gas. And the retail business faces cutthroat price competition.

Juicy yield

The company offers an attractive dividend yield, at 4.9 percent recently. And the dividend has increased 22 percent over the past five years.

FirstEnergy’s profit slumped 37 percent in the second quarter to $171 million from $256 million a year earlier. Revenue soared 32 percent to $4.1 billion.

Standard & Poor’s analyst Justin McCann has a hold rating on FirstEnergy shares. “The acquisition of Allegheny Energy, completed on Feb. 25, increased FirstEnergy's customer base by about 33 percent and its generating capacity by more than 65 percent,” he writes.

“We expect the acquisition to result in significant efficiencies and economies of scale and to be accretive to earnings 12 months after its completion.”

But first McCann expects operating earnings to drop 7 percent a share this year from 2010. “For 2012, we expect operating EPS to increase fractionally from projected results for 2011, as the Allegheny Energy synergies and a gradual improvement in the economy are partially offset by an assumed return to more normal weather,” he writes.

The company next reports Nov. 1.

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FirstEnergy s (FE) purchase of Allegheny Energy early this year made it one of the country s largest utilities. It has more than 23,000 megawatts of capacity and serves 6 million customers in Ohio, Pennsylvania, New Jersey, Maryland, and West Virginia. Now it has to turn...
FirstEnergy,buy,earnings,FE
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2011-08-20
Thursday, 20 Oct 2011 02:08 PM
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