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FirstEnergy Is Not Cheap Enough To Compensate For Problems

Apr. 04, 2021 8:43 PM ETFirstEnergy Corp. (FE)5 Comments
Geoff Considine profile picture
Geoff Considine


  • FE has some serious political and credit issues.
  • The stock has a 4.55% forward yield and forward P/E of 13.6.
  • The Wall Street consensus is bullish, with 6.5%-8% expected 12-month price appreciation.
  • The market-implied outlook (derived from options prices) is bearish.
  • My final rating is neutral.

First Energy (NYSE:FE) is a challenge for investors. The stock price had started to recover from its COVID-driven fall when the company was rocked by revelations of a bribery scandal in July 2020. The stock fell from a close of $42.14 on July 18th to a close of $27.09 on July 22nd. Since this event, the stock price has gradually increased, reaching $34.31 at the most recent close. Between COVID and the scandal, the stock is down 34% from its pre-COVID 2020 high close of $52.15 on 2/19.

While the P/E is low compared to the utilities sector, and the forward dividend yield is 4.55%, it is not clear that the stock is a bargain. Expected earnings growth is anemic. There are larger utilities that are not in distress, with similar P/E ratios, and which have forward yields greater than 4% (SO, DUK, and ED, for example).

Price history and basic statistics for FE (Source: Seeking Alpha)

The company's credit rating was cut to junk levels by the three largest ratings agencies in November 2020. Investing in companies in the throes of this level of distress is challenging.

In this post, I am not going to offer my own analysis and opinions on FE. Instead, I examine two types of consensus outlooks for the stock. The first is the Wall Street analyst consensus rating and price target. The second is the market-implied outlook derived from the prices at which call and put options are trading. The market-implied outlook represents the consensus view on the relative odds of gains vs. losses of various magnitudes.

Wall Street Analyst Outlook

I was quite surprised to find that the consensus rating from Wall Street analysts is bullish. Among the cohort of 9 ranked analysts that contribute to eTrade's consensus, the 12-month price target is $36.56, 6.56% above the most

This article was written by

Geoff Considine profile picture
Geoff has worked in quantitative finance for more than twenty years. Before entering finance, Geoff was a research scientist for NASA. Geoff holds a PhD in Atmospheric Science from the University of Colorado - Boulder and a BS in Physics from Georgia Tech. Neither Geoff Considine nor Quantext (Geoff's company) are investment advisors. Nothing in any commentary here on Seeking Alpha or elsewhere shall be regarded as advice.

Analyst’s Disclosure: I am/we are long DUK, SO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

Very surface level analysis. Much of what you consider to be threats could easily be opportunities (especially if all the bad news you speak of is priced in). FE certainly worth a little more due diligence in my opinion
I can,t believe the shareholders have not been asked to bale out this Corp. mess by the PUCO or the governing parties . Or maybe its coming , watch out investors, bad news is coming.. Corp. GREED..
Ichan buying between $184M and $980M of FE...
This guy plays in the billions and has the best
analysts in the industry working for him...
This should tell you something regarding the
longer term prospects of FE.
This is all I have to say...
madbeachman profile picture
@FunInvesting Hmmm, Carl and his analysts don't have that great a record. Recall IEP peaked at $148 in 2013, it stands at $55.64 today. Yes, there were lots of dividends since then (around $60) but that is still down more than 20% meanwhile SPY is up about 140% (with dividends) over that period. In fact, IEP has severely underperformed the market over almost any time frame.
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