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Mild Weather Mars FirstEnergy’s Q2 Earnings

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  • FirstEnergy clocked flattish earnings growth driven by mild weather in the second quarter.
  • The company beat consensus EPS estimates but missed on the revenue front.

Electric utility company FirstEnergy (FE) released its second-quarter earnings results on July 23. It reported adjusted EPS of $0.61, beating consensus estimates for the quarter. In the same quarter last year, FirstEnergy reported EPS of $0.62.

Lower operating expenses in FirstEnergy’s regulated distribution business positively affected its second-quarter numbers partially offset by mild weather during the quarter. Mild weather is expected to have negatively affected utilities’ (XLU) earnings in the second quarter.

FirstEnergy stock is up more than 16% so far this year, marginally outperforming the Utilities Select Sector SPDR ETF (XLU). FE forms almost 2.7% of XLU.

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Earnings highlights

FirstEnergy reported total revenue of $2.5 billion in the second quarter, missing the consensus estimate. Its revenue performance indicated a drop of almost 4% year-over-year. Its lower revenue can be attributed to mild weather. Heating degree days in the second quarter were 20% below normal and 23% below their level in the second quarter of 2018. Cooling degree days were 4% below normal and 28% lower than last year.

FirstEnergy’s electric sales to residential customers decreased 9.7%, and its electric sales to commercial customers decreased 5.6% in the second quarter compared to the same quarter last year. Sales to industrial customers fell 1.7% mainly due to weak demand from the steel and automotive sectors offsetting higher demand from the shale sector.

FirstEnergy’s management has given an EPS guidance range of $2.45–$2.75 for 2019. This guidance suggests flattish earnings growth compared to 2018.

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Ohio has finally passed a bill to create subsidies that will avoid an early shutdown of the state’s two nuclear power plants, according to Reuters. FirstEnergy Solutions, which separated from FirstEnergy last year, owns two nuclear power plants: Davis-Besse and Perry. It was planning to shut down these money-losing plants by 2020 and 2021 if it didn’t receive financial assistance.

Brokerages raise FE’s price target

According to analysts surveyed by Reuters, FirstEnergy stock has a median target price of $47.1, indicating a potential upside of almost 9% for the next 12 months against its current market price of $43.3. Wall Street analysts seem mostly positive on FirstEnergy stock.

Among the 17 analysts tracking FE, four recommend “strong buys,” and nine recommend “buys” on the stock. Four analysts recommend “holds,” and none recommend “sells” as of July 24. Citigroup raised FE’s target price from $41.0 to $42.0 on July 24. Guggenheim Securities raised FE’s target from $46.0 to $49.0 on July 22.

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