Will FirstEnergy Overcome Coal's Weakness?

Next Tuesday, FirstEnergy (NYSE: FE  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Utilities have done reasonably well so far in 2013, and FirstEnergy has seen success with its power generation and distribution business. But as conditions in the utility industry change, can the company keep up with the pace of innovation? Let's take an early look at what's been happening with FirstEnergy over the past quarter and what we're likely to see in its quarterly report.

Stats on FirstEnergy

Analyst EPS Estimate

$0.68

Change From Year-Ago EPS

(17%)

Revenue Estimate

$3.81 billion

Change From Year-Ago Revenue

(6.6%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will FirstEnergy's earnings power up or black out this quarter?
Analysts have had mixed views in recent months on FirstEnergy's earnings prospects. They've cut a nickel per share from their first-quarter estimates, but they've actually boosted their full-year 2013 consensus by $0.03 per share. The stock, meanwhile, has jumped, rising 15% since late January.

FirstEnergy has a strong portfolio of power-generation assets that include substantial exposure to nuclear and coal-fired power plants as well as renewable energy like solar, wind, and hydroelectric. Yet what makes it stand out from most of its peers is its negligible production from gas-fired power plants. By contrast, nuclear specialist Exelon (NYSE: EXC  ) produces the bulk of its non-nuclear energy from gas, and it and other utilities have been bolstering their nat-gas exposure recently.

The plunge in natural gas prices has therefore left FirstEnergy in a worse position competitively, as even though coal prices have fallen along with natural gas, FirstEnergy no longer has as large a cost advantage over its peers. Moreover, between cost issues and heightened environmental regulation, FirstEnergy idled several coal plants last year, and investors can expect more such moves in the future if current conditions persist.

Another strategic move that FirstEnergy is looking closely at is selling off its hydroelectric assets. NextEra Energy (NYSE: NEE  ) completed its hydro divestiture in March, and FirstEnergy moved up its expected sale date for the 9% of its total generation capacity that comes from hydro, with an eye toward raising cash and emphasizing its transmission business.

In FirstEnergy's report, watch closely for how the company is faring in its fight with rival American Electric (NYSE: AEP  ) to grab up customers in the key Ohio market. With Ohio slated to fully deregulate its utility industry by 2015, the two companies have been fighting to retain and capture customers. That battle, along with prices of natural gas and coal, will go a long way toward determining FirstEnergy's future success.

In contrast to FirstEnergy's coal-heavy production, Exelon is perfectly positioned to capitalize on the push toward clean energy with the largest nuclear fleet in North America. This strength, combined with an increased focus on balance sheet health, places Exelon and its resized dividend on a short list of the top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.

Click here to add FirstEnergy to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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