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Build a Slow Position in FirstEnergy As Utilities Giant Rebuilds Trust

Oftentimes, retirees will own shares of a large utilities company like FirstEnergy (NYSE:FE) as an alternative to government bonds. However, while FE stock does indeed offer excellent yield, it’s anything but boring.

two light bulbs with grey sky in the background

Source: Shutterstock

There was a time when FE stock relentlessly powered its way upwards, only to crash to gut-wrenching lows. And, the share-price collapse can’t simply be blamed on the Covid-19 pandemic.

The recent history of FirstEnergy involves a scandal, as well as a newly appointed board member who might be able to help put the pieces back together.

Plus, there’s a fresh announcement concerning a famous activist investor and a potentially enormous purchase of FirstEnergy shares. That’s a whole lot of drama for a utilities company, so let’s turn up the electricity and delve right into FE stock.

A Closer Look at FE Stock

The recent price history of FE stock could be divided into four acts. I’ll call the first act “Consolidation,” in which the share price drifted sideways in 2016 and 2017. During this time, the stock stayed fairly close to $30.

Next is part two: “Rising Action.” Throughout 2018 and 2019, FE stock relentlessly drifted upwards towards the $50 area. That’s when the folks who held FE shares for the long term were richly rewarded for their loyalty.

Then came the third act: “The Dark Year.” 2020 marked not just March’s Covid-19 pandemic crash, but a second crash in the FE stock price in July. By the end of the year, FE shares were trading at $30 and change.

And finally, there was part 4: “Redemption.” But this act isn’t fully written yet. As of Feb. 23, FE stock had worked its way back up to $33.88, and the bulls have a sense of hope for the future.

A Summer Worth Forgetting

Earlier, I mentioned the summer of 2020 as a dark period for FE stock holders. This particular price decline wasn’t attributable to the Covid-19 pandemic, it seems.

Rather, it appears to have been precipitated by FirstEnergy’s connection to an Ohio bribery scandal.

Allegedly, Ohio House Speaker Larry Householder was charged with the crime of racketeering. And unfortunately, Householder may have been involved in a $150 million bailout of two nuclear power plants owned by Energy Harbor (OTCMKTS:ENGH), a former FirstEnergy subsidiary. The Federal Bureau of Investigation’s legal complaint did not specifically mention FirstEnergy or Energy Harbor.

Nonetheless, the connection to the scandal was enough to scare some FE shareholders out of their positions.

KeyBanc Capital Markets analyst Sophie Karp’s words concisely summed up the prevailing market sentiment at the time: “We expect the investigation to create an overhang on the shares of [FirstEnergy] in the [near term].”

At that time, it undoubtedly felt as if the FE stock price would never recover. But then, as the old saying goes, “Never say never.”

You Say They Can’t, I Say Icahn

Of course, a public relations cleanup is a long and challenging process. Still, FirstEnergy has perhaps taken a step in the right direction with the appointment of John Somerhalder as the vice chairman of the company’s board.

According to FirstEnergy, as part of his new role, Somerholder will help lead efforts to “rebuild trust” with the company’s external stakeholders.

“His proven expertise in driving strong corporate governance and his external perspective will help FirstEnergy navigate its current challenges and objectives,” commented non-executive board chairman Donald Misheff regarding Somerholder in his new role.

So, perhaps a public-relations turnaround might be possible for FirstEnergy. At the very least, famed activist investor Carl Icahn seems to believe in the company now.

Indeed, FirstEnergy revealed a letter from Icahn Capital stating that it has a “good faith intention” to acquire FirstEnergy shares collectively valued at between $184 million and $919.9 million.

That’s an awfully big stake. It’s actually a good sign, as Icahn doesn’t take his investments lightly. No doubt, Icahn’s firm conducted due diligence before determining that FirstEnergy is now headed in the right direction.

The Bottom Line on FE Stock

So, let’s recap. FirstEnergy got caught up in a scandal, and now the company is trying to rebuild its reputation. Also, a famous activist investor reportedly plans to buy a boatload of FirstEnergy shares.

If we’ve proved anything, it’s that utilities stocks aren’t always so boring after all. And the story of FE stock — and the company itself — should hopefully have a happy, less turbulent ending.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2021/02/build-a-slow-position-in-fe-stock-as-utilities-giant-rebuilds-trust/.

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