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This Narrow-Moat Utility Is Undervalued

FirstEnergy is one of the best utility performers this year, with solid earnings growth and a growing dividend.


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. FirstEnergy eliminated its merchant generation exposure by separating from its unregulated unit FirstEnergy Solutions, or FES, earlier this year.

Without the support of its parent, FES immediately filed for bankruptcy. To avoid years of litigation, FirstEnergy settled with FES creditors with guarantees and payments totaling roughly $2.7 billion. The market applauded the move, and the shares have been one of the best performing utilities in 2018, with a total return over 22%, double the S&P 500's total return.

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