EUR 850.00 For Business Accounts Only

Morningstar | FirstEnergy Reaffirms 6%-8% Long-Term Earnings Growth Guidance

In September 2018, the bankruptcy court approved a settlement agreement to provide payments, assurances, and asset transfers to FirstEnergy Solutions’ creditors that we estimate total about $2.7 billion. The agreement allows FirstEnergy to avoid years of litigation separating itself from its bankrupt merchant unit.The company can now focus on accelerating investments in its wide- and narrow-moat businesses that should result in strong earnings growth and put FirstEnergy in position to begin increasing its common dividend.We believe FirstEnergy’s transmission businesses demonstrate wide-moat characteristics due to the favorable federal regulatory framework providing consistent returns above the cost of capital. These transmission investments, estimated to contribute almost 30% of earnings by 2022, provide an almost guaranteed economic benefit to shareholders.FirstEnergy is also accelerating its investment in its utilities with narrow-moat characteristics in states with constructive regulatory frameworks that are likely to produce consistent realized returns above their cost of capital. Together, businesses with wide- and narrow-moat characteristics represent about 90% of earnings following the separation from bankrupt FES.We believe FirstEnergy shares are undervalued and that the market fails to see the company’s widening moat as it invests over $2.5 billion per year in its wide-moat transmission businesses and narrow-moat utilities. We are also seeing improvement in New Jersey regulation that should eventually benefit no-moat Jersey Central Power & Light and allow it to earn closer to its allowed return. We believe solid earnings growth and a growing dividend will be the catalyst for the market valuing FirstEnergy shares more in line with its regulated utility peers with economic moats.