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Stock Strategist

FirstEnergy Returns to Its Regulated Past

There is opportunity for investors when the market revalues the company as a fully regulated narrow-moat utility.

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U.S. utilities have lost their appetite for merchant generation. Weak electricity demand, renewable energy growth, and falling natural gas prices have squeezed margins.

Several large utilities have reduced or eliminated their commodity-sensitive businesses, and  FirstEnergy (FE) soon will join them. By 2019, we expect FirstEnergy’s earnings will come entirely from less-volatile fully regulated businesses, many with wide and narrow economic moats. As a result, we recently upgraded our moat rating to narrow from none.

Charles Fishman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.