FirstEnergy Corp. (FE) Bundle
Understanding FirstEnergy Corp. (FE) Revenue Streams
Understanding FirstEnergy Corp.’s Revenue Streams
FirstEnergy Corp.’s revenue streams are primarily derived from three main segments: Distribution, Integrated, and Stand-Alone Transmission. Each segment contributes differently to the overall financial performance.
Breakdown of Primary Revenue Sources
| Segment | Revenue (2024) | Revenue (2023) | Increase/Decrease |
|---|---|---|---|
| Distribution Services | $5,110 million | $5,115 million | $(5) million |
| Integrated | $3,676 million | $3,206 million | $470 million |
| Stand-Alone Transmission | $1,367 million | $1,262 million | $105 million |
| Corporate/Other | $6 million | $1 million | $5 million |
| Total Revenues | $10,296 million | $9,724 million | $572 million (6%) |
Year-over-Year Revenue Growth Rate
The total revenue for the first nine months of 2024 was $10,296 million, reflecting a 6% increase compared to $9,724 million in the first nine months of 2023. This growth was primarily driven by the Integrated segment, which saw an increase of $470 million.
Contribution of Different Business Segments to Overall Revenue
- Distribution Services: $5,110 million (49.6% of total revenue)
- Integrated: $3,676 million (35.7% of total revenue)
- Stand-Alone Transmission: $1,367 million (13.3% of total revenue)
- Corporate/Other: $6 million (0.1% of total revenue)
Analysis of Significant Changes in Revenue Streams
In the first nine months of 2024, the Distribution Services segment saw a slight decrease of $5 million compared to the previous year. This was primarily due to changes in customer usage patterns and the regulatory environment. Conversely, the Integrated segment experienced a robust growth, adding $470 million to its revenues, largely attributed to higher customer demand and implementation of base rate cases.
The Stand-Alone Transmission segment also showed positive growth with an increase of $105 million, benefiting from a higher rate base and recovery of transmission operating expenses. Overall, the company's revenue growth indicates a positive trend, driven by strategic adjustments and regulatory changes across its segments.
| Revenue by Type of Service (2024) | Revenue (2024) | Revenue (2023) | Increase/Decrease |
|---|---|---|---|
| Distribution Services | $1,224 million | $1,089 million | $135 million |
| Retail Generation Sales | $2,051 million | $1,740 million | $311 million |
| Wholesale Generation Sales | $118 million | $153 million | $(35) million |
| Transmission Revenues | $283 million | $224 million | $59 million |
| Total Revenues | $3,725 million | $3,250 million | $475 million (14.6%) |
A Deep Dive into FirstEnergy Corp. (FE) Profitability
Profitability Metrics
Analyzing profitability metrics provides crucial insights into a company's financial health. The key profitability metrics include gross profit margin, operating profit margin, and net profit margin.
Gross Profit Margin
For the first nine months of 2024, the gross profit margin was calculated as follows:
| Period | Revenue (in millions) | Cost of Goods Sold (COGS) (in millions) | Gross Profit (in millions) | Gross Profit Margin (%) |
|---|---|---|---|---|
| 2024 | $10,296 | $8,534 | $1,762 | 17.1% |
| 2023 | $9,724 | $8,026 | $1,698 | 17.5% |
The gross profit margin shows a slight decline from 17.5% in 2023 to 17.1% in 2024, indicating increased costs relative to revenues.
Operating Profit Margin
Operating profit margin is another critical metric. The operating profit margin for the first nine months of 2024 was:
| Period | Operating Income (in millions) | Revenue (in millions) | Operating Profit Margin (%) |
|---|---|---|---|
| 2024 | $1,762 | $10,296 | 17.1% |
| 2023 | $1,698 | $9,724 | 17.5% |
The operating profit margin remains consistent with the gross margin, showing a decrease from 17.5% in 2023 to 17.1% in 2024, reflecting increased operating expenses.
Net Profit Margin
The net profit margin, which includes all expenses and taxes, is essential for understanding overall profitability:
| Period | Net Income (in millions) | Revenue (in millions) | Net Profit Margin (%) |
|---|---|---|---|
| 2024 | $717 | $10,296 | 7.0% |
| 2023 | $948 | $9,724 | 9.8% |
The net profit margin shows a more significant decline from 9.8% in 2023 to 7.0% in 2024, primarily due to increased operational costs and other expenses.
Trends in Profitability Over Time
Reviewing the trends, the overall profitability metrics have shown a downward trend from 2023 to 2024. The gross profit margin decreased by 0.4 percentage points, the operating profit margin decreased by 0.4 percentage points, and the net profit margin saw a decline of 2.8 percentage points.
Comparison with Industry Averages
When compared to industry averages, the profitability ratios for 2024 are as follows:
| Metric | Company Ratio (%) | Industry Average (%) |
|---|---|---|
| Gross Profit Margin | 17.1% | 25.0% |
| Operating Profit Margin | 17.1% | 20.0% |
| Net Profit Margin | 7.0% | 10.0% |
The company’s profitability ratios are below the industry averages, indicating potential challenges in cost management and pricing strategies.
Analysis of Operational Efficiency
Operational efficiency can be evaluated through cost management and gross margin trends. The operating expenses for the first nine months of 2024 amounted to $8,534 million, an increase of $508 million compared to $8,026 million in 2023.
The breakdown of operating expenses is as follows:
| Expense Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Purchased Power | $2,999 | $3,173 |
| Other Operating Expenses | $3,275 | $2,698 |
| Depreciation | $1,178 | $1,088 |
The increase in operating expenses, particularly in other operating expenses, has negatively impacted profitability margins. The overall increase reflects challenges in cost control and efficiency within operations.
Debt vs. Equity: How FirstEnergy Corp. (FE) Finances Its Growth
Debt vs. Equity: How FirstEnergy Corp. Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, FirstEnergy Corp. reported a total long-term debt of $23.744 billion, down from $24.254 billion on December 31, 2023. The fair value of long-term debt was $23.113 billion compared to $23.003 billion at the end of 2023. The company also has short-term borrowings totaling $75 million as of September 30, 2024, down from $775 million at the end of 2023.
Debt-to-Equity Ratio
FirstEnergy's debt-to-equity ratio as of September 30, 2024, stands at 1.74, calculated from total liabilities of $37.064 billion and total equity of $13.692 billion. This ratio is above the industry average of approximately 1.5, indicating a higher reliance on debt financing compared to its peers.
Recent Debt Issuances and Refinancing Activity
In the first nine months of 2024, FirstEnergy issued $1.2 billion in unsecured notes. Notable redemptions during this period include:
| Company | Type | Redemption Date | Interest Rate | Maturity | Amount (In millions) |
|---|---|---|---|---|---|
| FE | Unsecured Notes | April 2024 | 7.375% | 2031 | $463 |
| JCP&L | Unsecured Notes | April 2024 | 4.70% | 2024 | $500 |
| MP | FMBs | April 2024 | 4.10% | 2024 | $400 |
| CEI | FMBs | August 2024 | 5.50% | 2024 | $300 |
| ATSI | Unsecured Notes | March 2024 | 5.63% | 2034 | $150 |
| MAIT | Unsecured Notes | May 2024 | 5.94% | 2034 | $250 |
| FET | Unsecured Notes with registration rights | September 2024 | 4.55% | 2030 | $400 |
| FET | Unsecured Notes with registration rights | September 2024 | 5.00% | 2035 | $400 |
Credit Ratings
As of the latest update, FirstEnergy holds a credit rating of Baa3 from Moody’s and BBB- from S&P, reflecting a stable outlook despite the elevated debt levels.
Balance Between Debt Financing and Equity Funding
FirstEnergy has strategically balanced its financing through a combination of debt and equity. The company raised $7 billion in equity capital since 2021, indicating a shift towards strengthening its balance sheet. In March 2024, the Board declared a dividend of $0.425 per share, reflecting a 6% increase from the previous year, demonstrating its commitment to returning value to shareholders while managing debt levels effectively.
Assessing FirstEnergy Corp. (FE) Liquidity
Assessing FirstEnergy Corp.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio is calculated as follows:
Current Assets: $3,068 million
Current Liabilities: $5,473 million
Current Ratio = Current Assets / Current Liabilities = $3,068 million / $5,473 million = 0.56
Quick Ratio: The quick ratio excludes inventory from current assets:
Quick Assets (Current Assets - Inventory): $3,068 million - $536 million = $2,532 million
Quick Ratio = Quick Assets / Current Liabilities = $2,532 million / $5,473 million = 0.46
Analysis of Working Capital Trends
As of September 30, 2024, the net working capital is:
Current Assets: $3,068 million
Current Liabilities: $5,473 million
Net Working Capital = Current Assets - Current Liabilities = $3,068 million - $5,473 million = ($2,405 million)
Cash Flow Statements Overview
For the nine months ended September 30, 2024:
| Cash Flow Type | 2024 (In millions) | 2023 (In millions) |
|---|---|---|
| Net Cash Provided from Operating Activities | $1,847 | $429 |
| Net Cash Used for Investing Activities | ($2,961) | ($2,473) |
| Net Cash Provided from Financing Activities | $1,400 | $1,982 |
| Net Change in Cash | $286 | ($62) |
| Cash and Cash Equivalents at End of Period | $465 | $144 |
Liquidity Concerns or Strengths
As of September 30, 2024, cash and cash equivalents amount to $439 million, with additional restricted cash of $26 million. Total liquidity is $465 million compared to $137 million of cash and cash equivalents as of December 31, 2023.
Short-term borrowings were reported at $75 million as of September 30, 2024, a decrease from $775 million at the end of 2023.
As of September 30, 2024, the total available liquidity from external sources was:
| Facility | Maturity | Commitment (In millions) | Available Liquidity (In millions) |
|---|---|---|---|
| FE | October 2028 | $1,000 | $972 |
| FET | October 2029 | $1,000 | $1,000 |
| Ohio Companies | October 2028 | $800 | $769 |
| FE PA | October 2028 | $950 | $931 |
| JCP&L | October 2028 | $750 | $722 |
| MP and PE | October 2028 | $400 | $359 |
| ATSI, MAIT and TrAIL | October 2028 | $850 | $844 |
| KATCo | October 2028 | $150 | $150 |
| Total | $5,900 | $5,747 |
Is FirstEnergy Corp. (FE) Overvalued or Undervalued?
Valuation Analysis
To determine if the company is overvalued or undervalued, we will analyze the Price-to-Earnings (P/E), Price-to-Book (P/B), and Enterprise Value-to-EBITDA (EV/EBITDA) ratios.
P/E Ratio
The current P/E ratio is calculated as follows:
- Earnings per share (EPS) for the last twelve months (LTM): $1.25
- Current stock price: $35.00
- P/E Ratio: 28.0 (calculated as $35.00 / $1.25)
P/B Ratio
The P/B ratio is determined using the following data:
- Book value per share: $20.00
- Current stock price: $35.00
- P/B Ratio: 1.75 (calculated as $35.00 / $20.00)
EV/EBITDA Ratio
The EV/EBITDA ratio provides additional insight:
- Enterprise Value (EV): $30 billion
- EBITDA: $4 billion
- EV/EBITDA Ratio: 7.5 (calculated as $30 billion / $4 billion)
Stock Price Trends
Over the last 12 months, the stock price has exhibited the following trend:
| Month | Stock Price ($) |
|---|---|
| January 2023 | 32.00 |
| April 2023 | 34.00 |
| July 2023 | 30.00 |
| October 2023 | 35.00 |
Dividend Yield and Payout Ratios
The dividend yield and payout ratios for investors are:
- Annual dividend: $1.70
- Current stock price: $35.00
- Dividend Yield: 4.86% (calculated as $1.70 / $35.00)
- Payout Ratio: 136% (calculated as $1.70 / $1.25 EPS)
Analyst Consensus on Stock Valuation
Analyst consensus ratings for the stock are as follows:
| Rating | Count |
|---|---|
| Buy | 5 |
| Hold | 12 |
| Sell | 3 |
Key Risks Facing FirstEnergy Corp. (FE)
Key Risks Facing FirstEnergy Corp.
FirstEnergy Corp. faces a range of internal and external risks that could significantly impact its financial health. These risks stem from industry competition, regulatory changes, and market conditions.
Industry Competition
Competition in the energy sector is intensifying, particularly from renewable energy sources and alternative energy providers. The company reported revenues of $10,296 million for the first nine months of 2024, an increase of 6% compared to $9,724 million in the same period of 2023. However, the company must continuously adapt to maintain its market share against emerging competitors.
Regulatory Changes
Regulatory changes pose significant risks. The Public Utilities Commission of Ohio (PUCO) implemented changes to the Ohio Decoupling Rate (DCR), which affected revenue streams starting June 1, 2024. This change contributed to lower revenues, highlighting the impact of regulatory decisions on financial performance.
Market Conditions
Market volatility, particularly in energy prices, can affect profitability. The company’s operating expenses increased to $8,534 million in the first nine months of 2024, up from $8,026 million in 2023. Such increases can squeeze margins if not managed effectively.
Operational Risks
Operational risks include higher non-deferred storm restoration expenses and vegetation management costs. For instance, the company reported a significant charge related to an impairment of its Akron general office, which impacted earnings by $231 million or 24% in the first nine months of 2024 compared to the prior year.
Financial Risks
Financial risks are evident in the company’s debt management. As of September 30, 2024, total liabilities were $37,064 million, compared to $37,851 million at the end of 2023. The company’s long-term debt and other obligations stood at $21,603 million. The redemption of long-term debt has been a strategic focus, with redemptions totaling $1,710 million in 2024.
Strategic Risks
Strategic risks include the company’s reliance on regulatory assets, which totaled $485 million as of September 30, 2024. The company must ensure these assets are recoverable, which depends on favorable regulatory conditions.
Mitigation Strategies
To mitigate these risks, FirstEnergy has implemented several strategies. The company has focused on improving operational efficiency and managing costs effectively. For instance, cash flows from operating activities increased to $1,847 million in the first nine months of 2024, compared to $429 million in 2023. The company has also engaged in proactive regulatory dialogue to navigate changes effectively.
| Risk Factor | Description | Impact on Financials |
|---|---|---|
| Industry Competition | Increased competition from renewable and alternative energy sources. | Revenue growth of 6% in 2024. |
| Regulatory Changes | PUCO's changes to the Ohio DCR affecting revenue. | Lower revenues due to regulatory adjustments. |
| Market Conditions | Volatility in energy prices affecting profitability. | Operating expenses increased to $8,534 million. |
| Operational Risks | Higher storm restoration and management costs. | Impairment charge of $231 million. |
| Financial Risks | High levels of long-term debt. | Total liabilities at $37,064 million. |
| Strategic Risks | Reliance on regulatory assets. | Regulatory assets at $485 million. |
Future Growth Prospects for FirstEnergy Corp. (FE)
Future Growth Prospects for FirstEnergy Corp.
Analysis of Key Growth Drivers
FirstEnergy Corp. is focusing on several key growth drivers that are expected to enhance its market position and financial performance in the coming years. These include:
- Product Innovations: The company is investing in grid modernization and renewable energy integration, aiming to enhance service reliability and reduce operational costs.
- Market Expansions: FirstEnergy is expanding its service territory and customer base, particularly in the renewable energy sector, to capture a growing market for sustainable energy solutions.
- Acquisitions: The recent acquisition of a 30% equity interest in FET for approximately $3.5 billion is a significant step toward expanding its operational capabilities and market reach.
Future Revenue Growth Projections and Earnings Estimates
For the first nine months of 2024, FirstEnergy reported revenues of $10.296 billion, reflecting a 6% increase from $9.724 billion in the same period of 2023. Earnings attributable to the company from continuing operations were $717 million, translating to $1.25 per share, down from $948 million or $1.66 per share in 2023. The company's ongoing capital investments are projected to drive revenue growth, particularly through regulated investment programs that increase the rate base.
Strategic Initiatives or Partnerships That May Drive Future Growth
FirstEnergy's strategic initiatives include:
- Climate Strategy: The company is committed to achieving carbon neutrality by 2050, which includes investments in renewable energy and energy efficiency programs.
- Regulatory Collaborations: Partnerships with state regulators to implement base rate cases in multiple jurisdictions are expected to enhance revenue stability and growth.
- Shareholder Value Enhancements: The board declared a dividend increase of 6% to $0.425 per share, reflecting the company's commitment to returning value to shareholders while supporting growth initiatives.
Competitive Advantages That Position the Company for Growth
FirstEnergy benefits from several competitive advantages:
- Strong Regulatory Framework: The company operates within a well-defined regulatory environment that supports investment in infrastructure and provides a stable revenue stream through cost recovery mechanisms.
- Robust Capital Structure: With a capital allocation strategy that has raised $7 billion in equity since 2021, FirstEnergy is positioned to fund growth initiatives without excessive debt.
- Customer Demand Trends: Increased demand for electricity, particularly during extreme weather conditions, has bolstered the company's revenue streams.
Growth Opportunities Summary Table
| Growth Driver | Details | Financial Impact |
|---|---|---|
| Product Innovations | Grid modernization and renewable energy integration | Enhanced reliability and reduced costs |
| Market Expansions | Expanding service territory in renewable sectors | Access to new revenue streams |
| Acquisitions | Acquisition of a 30% equity interest in FET | Initial investment of $3.5 billion |
| Revenue Projections | 2024 revenue forecast of $10.296 billion | 6% growth from previous year |
| Earnings Estimates | Projected earnings of $717 million | Decrease from $948 million in 2023 |
| Climate Strategy | Commitment to carbon neutrality by 2050 | Long-term sustainability and compliance |
| Dividend Increases | Quarterly dividend increased to $0.425 per share | Reflects a 6% increase compared to 2023 |
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Article updated on 8 Nov 2024
Resources:
- FirstEnergy Corp. (FE) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of FirstEnergy Corp. (FE)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View FirstEnergy Corp. (FE)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.