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How Institutional Investors Played FirstEnergy in Q2 2018

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Dec. 4 2020, Updated 10:53 a.m. ET

FirstEnergy

FirstEnergy (FE) stock has been on a solid uptrend so far this year. It has rallied more than 20.0% year-to-date. Investors seem to have taken its transformation to a pure-play regulated utility well. The Vanguard Group added nearly 0.9 million shares of FirstEnergy in the second quarter. On June 30, Vanguard held 11.6%, or 56.3 million shares, of FE’s total outstanding shares.

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What’s next for FirstEnergy?

BlackRock Institutional Trust lowered its stake in FE by selling net ~1.0 million shares during the second quarter. According to its recent 13F filing, it held a 6.2% stake in FirstEnergy during the quarter.

Nuveen LLC added ~2.0 million shares of FirstEnergy and increased its stake to 2.6% on June 30. Renaissance Technologies LLC added 2.3 million shares of FirstEnergy. At the end of the second quarter, it held 2.5% in FE.

It should be noted that FirstEnergy has not increased its per-share dividends for the last 19 quarters. FirstEnergy’s competitive subsidiary FirstEnergy Solutions and FirstEnergy Nuclear Operating Company (FENOC) filed for Chapter 11 bankruptcy to facilitate financial restructuring. 

Because utilities’ (XLU) regulated operations normally earn stable and predictable revenues (unlike competitive operations), the deconsolidation is expected to stabilize FirstEnergy’s earnings and ultimately dividends in the long term.

As we discussed earlier, utilities have had a tepid run so far this year primarily due to strength in the Treasury yields. Softness in these defensives could continue, given last week’s forecast by JP Morgan Chase’s CEO, Jamie Dimon, of benchmark yields reaching 5.0% or higher. 

Ten-year Treasury yields are usually seen as a benchmark for mortgages and other loans. Read what could happen to utility stocks if this view comes to pass in Utilities: What If Jamie Dimon’s Forecast Comes True?

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