FirstEnergy cut at BofA on 'underappreciated' pension cost problem

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FirstEnergy (NYSE:FE) -1.8% in Monday’s trading after Bank of America downgraded shares to Neutral from Buy with a $44 price target, cut from $52, pointing to “growing concerns about the negative pension mark-to-market where we estimate ~$0.20 negative impact on 2023+, prior to mitigation, double management’s guidance.”

FirstEnergy (FE) has “one of the least funded pension plans” among major utilities at 80%, compared to full-funded for industry peers, according to BofA’s Julien Dumoulin-Smith.

Investors have focused on the pension problem since FirstEnergy’s (FE) Q1 earnings call on April 22, and “with the backdrop of volatile equity, credit and Treasury markets, we think FE is unlikely to outperform lower risk peers given this underappreciated headwind,” Dumoulin-Smith writes.

The analyst says FirstEnergy’s (FE) pension problem has “markedly deteriorated” due to the broad decline in equities and credit YTD, and he now estimates the utility’s pension assets have declined 9%, down from 5.8% since March 31.

FirstEnergy (FE) recently reported Q1 adjusted EPS of $0.60 on revenues of ~$3B, up 11% Y/Y.


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