Morningstar | FirstEnergy Reports Strong 3Q; We Expect Flat 2019 Earnings Guidance at EEI Conference on Nov. 11
We are reaffirming our $41 per share fair value estimate and narrow moat rating after FirstEnergy reported strong third-quarter earnings, raised its 2018 earnings guidance, and reaffirmed its 6%-8% long-term EPS growth rate. Operating EPS was $0.80 in the recently ended quarter versus $0.63 in the same period last year. The strong results were driven by warm summer weather, increased weather-normalized residential usage, and continued industrial sales growth primarily from the shale gas and steel sectors.FirstEnergy increased its 2018 earnings guidance to $2.50-$2.60 per share from $2.25-$2.55 per share. We have increased our 2018 earnings estimate to $2.55 per share from $2.50 per share, due in large part to the favorable year-to-date results and updated guidance. However, the increase in our 2018 estimate did not have a material impact on our $41 fair value estimate.
Management reaffirmed its cost reductions from the FE Tomorrow initiative. The cost savings from this plan to downsize overhead due to the separation of FirstEnergy Solutions was already included in FirstEnergy’s long-term earnings growth guidance and our earnings estimates.
FirstEnergy plans to provide 2019 earnings guidance at the Edison Electric Institute Financial Conference that begins on Nov. 11. Our 2019 EPS estimate is $2.57 per share, only $0.02 higher than our 2018 estimate, largely because of the unusually favorable weather this year.
FirstEnergy reaffirmed its 6%-8% EPS growth rate through 2021 based on 2018 initial guidance and excluding the benefit of the Ohio Distribution Modernization Rider. Our 2021 EPS estimate, $2.82, is $0.19 higher than the upper end of the guidance range because of our assumption of a partial extension of the Ohio DMR. FirstEnergy plans to file with Ohio regulators for an extension of the DMR next year.
For more detail, see our report "FirstEnergy Returns to Its Regulated Past."
FirstEnergy is a public utility holding company. The company and its subsidiaries are principally involved in the transmission, distribution and generation of electricity. The company's reportable operating segments are comprised of: Regulated Distribution, which distributes electricity through the company's utility operating companies and also controls regulated electric generation capacity located primarily in West Virginia, Virginia and New Jersey; and Regulated Transmission, which provides transmission infrastructure owned and operated by the transmission companies and certain of the company's utilities to transmit electricity from generation sources to distribution facilities.
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