FE - FirstEnergy: An Emerging Value Case With A High Yield But Not Discounted Enough

2024-06-15 22:12:05 ET

Summary

• The Utilities sector has turned lower against the S&P 500 in the last month as its AI-play rally has lost steam.
• FirstEnergy has a decent earnings outlook and a fair valuation, but the stock is not a compelling buy quite yet.
• Ahead of earnings due out next month, I highlight key price levels to monitor.

After a powerful burst of absolute and relative strength from the middle of the first quarter through mid-May, the Utilities Select Sector SDPR Fund ETF (XLU) has turned lower and has underperformed the S&P 500. Despite lower interest rates, which usually benefit debt-heavy utility companies, the recent 0.5 percentage point drop in the 10-year Treasury rate has done little to stem a relative downturn in the XLU ETF. Of course, lower yields today in the bond market make one firm's high yield all the more attractive. Let's dig in. ...

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