FE - Embedded Expectations Analysis - 2020 07 27
FirstEnergy Corp. (FE:USA) currently trades slightly above corporate averages relative to UAFRS-based (Uniform) earnings, with a 25.5x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may be concerned about their ability to collect from certain customers, their upcoming rate case, and capital investmentsSpecifically, management may lack confidence in their ability to sustain operating earnings, fund their pension requirements, and normalize coronavirus costs going forward. Moreover, they may be concerned about collectability trends with commercial and industrial customers, and may lack confidence in their investments in states inside their operating area. Furthermore, they may be downplaying concerns about the outcome of the upcoming rate case, and may be concerned about the proportion of revenues that come from residential customers. Finally, they may lack confidence in the current infrastructure investment program
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.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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