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Why This Narrow-Moat Utility Looks Cheap Today

We upgraded First Energy's economic moat rating to narrow and think the market is overly concerned with the pending bankruptcy of one of the firm's units.


Charles Fishman: Over the past couple of years, the market has not been kind to unregulated power plants, or what is referred to in the industry as "merchant generation." Weak electricity demand, falling natural gas prices, and tremendous growth in wind and solar energy have squeezed margins. Many utilities have reduced or eliminated their exposure to this commodity-sensitive business, and we are confident that FirstEnergy will soon follow this path. 

By 2019, we expect FirstEnergy's earnings will come entirely from fully regulated businesses in Ohio, Pennsylvania, West Virginia, New Jersey, and Maryland, many with wide and narrow moats. As such, we upgraded our moat rating from none to narrow.

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