On Tuesday, Goldman Sachs (NYSE:GS) initiated coverage on shares of FirstEnergy Corp. (NYSE:FE), offering a positive outlook with a Buy rating and setting a price target of $45.00. The firm cited several key factors for its optimistic stance, including the company’s potential for above-average earnings per share (EPS) and rate base growth, as well as the possibility for additional investment in the electrical grid.
FirstEnergy, an electric utility company, is recognized for its consistent performance and is now anticipated to further enhance its rate base growth, which is already above the industry average at 9% annually. Goldman Sachs analysts believe that following the completion of the FirstEnergy Transmission (FET) sale in March 2024, the company will have greater flexibility in its balance sheet, enabling it to finance growth initiatives more comfortably.
The financial institution's analysis suggests that FirstEnergy could achieve an 8% compound annual growth rate (CAGR) in EPS through 2027. This projection is part of the rationale behind the $45 price target, which implies a 23% total return over the next 12 months.
Goldman Sachs' positive assessment reflects confidence in FirstEnergy's ability to capitalize on its improving financial position. The company's strategic moves, including the recent sale of its transmission assets, is seen as a step towards bolstering its investment capacity and sustaining its growth trajectory in the coming years.
InvestingPro Insights
As FirstEnergy Corp. (NYSE:FE) garners a favorable outlook from Goldman Sachs, InvestingPro data and insights add depth to this analysis. The company operates with a significant debt burden, which is a critical aspect to consider when evaluating its financial health. However, FirstEnergy has maintained dividend payments for 27 consecutive years, showcasing its commitment to shareholder returns even amidst financial leverage. Analysts predict the company will be profitable this year, a sentiment supported by its profitability over the last twelve months.
Key InvestingPro data metrics reveal a P/E ratio of 20 and an adjusted P/E ratio for the last twelve months as of Q4 2023 of 19.23, trading at a low P/E ratio relative to near-term earnings growth with a PEG ratio of 0.12. The company's market capitalization stands at 22.11 billion USD, and its revenue growth for the last twelve months as of Q4 2023 is 3.4%, indicating stability in its operations.
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