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Analyzing FirstEnergy Compared to Its Hybrid Utility Peers

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Analyzing FirstEnergy Compared to Its Hybrid Utility Peers PART 1 OF 4

How Does FirstEnergy Stock Look in 2017?

FirstEnergy’s market performance

Hybrid utilities are generally considered risky investments due to their relatively higher exposure to competitive operations. FirstEnergy, valued at $14 billion, generates a large chunk of its total earnings from competitive operations. Weak wholesale power prices and energy efficiency programs severely dented competitive players’ (FE) (PEG) (EXC) business in the last few years.

In order to stabilize earnings, FirstEnergy increased its focus on regulated operations. It’s transitioning towards becoming a pure-play regulated utility. The strategy bodes well for its long-term growth and stability.

How Does FirstEnergy Stock Look in 2017?

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The above chart compares stock performances of FirstEnergy and its peers along with broader markets (SPY) (SPX-INDEX). So far this year, FirstEnergy shares managed to generate slightly positive returns. The Utilities Select Sector SPDR (XLU) rose nearly 8% during the same period. Exelon (EXC), FirstEnergy’ peer and the largest hybrid utility, stock traded almost flat. So far, it returned just above 1% in 2017.

Weakness in the competitive power sector

Lower natural gas prices influenced wholesale power prices for the last few years, which led to volatile earnings and competitive utilities’ relative underperformance. If wholesale power prices recover, it might have a positive impact on competitive utilities (XLU).

FirstEnergy’s increased focus on regulated operations and its transition towards becoming a pure-play regulated utility bodes well for long-term growth and stability. Exelon is also increasing its focus on regulated operations in order to stabilize earnings.

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