Investors in FirstEnergy Corp., calmed down Wednesday, a day
after a surprise loss and earnings restatement sent the utility's
stock price plummeting.
FirstEnergy Corp. stock rebounded slightly and the Akron
utility's bonds were among corporate bonds that fell during trading
Shares in FirstEnergy rose 44 cents, or 1.4 percent, to close at
$31.77. Tuesday, shares fell 8.5 percent after the company announced
it had a $57.9 million second quarter loss and will restate earnings
going back to 2002.
Paul Fremont, an analyst with Jefferies & Co. Inc., said the
restatement of earnings did not appear, to him, to indicate serious
problems at FirstEnergy.
The restatement may largely be a function of changing auditors
from Arthur Andersen to PriceWaterhouseCoopers, he said.
``I don't see this as comparable to situations where companies
engaged in questionable trading practices or business practices,''
he said. ``I see this purely as an accounting issue, not as a way
they affect their fundamental business.''
Bloomberg News reported that FirstEnergy bonds were among other
U.S. corporate bonds that fell because of falling investor optimism
over company profits. It was the second day that FirstEnergy debt
``FirstEnergy is under pressure and spreads are widening on
disappointment about its reported loss,'' Tom Donne, who manages
about $2 billion in fixed income assets for Banc One Investments
Advisors in Columbus, told Bloomberg News.
FirstEnergy's 6.45 percent notes that mature in November 2011
fell in price, meaning their yield spread rose. Widening spreads
indicate that investors feel the bonds are more risky and therefore
they want more yield to compensate for the risk, Bloomberg
One analyst upgraded FirstEnergy stock Wednesday to
``outperform,'' another downgraded the stock from ``buy'' to
``neutral,'' while four analysts maintained ``hold,'' ``overweight''
or ``outperform'' ratings after releasing revised reports following
the company's earnings news.
Fremont at Jefferies & Co. Inc., said he is maintaining a
``buy'' rating on FirstEnergy. He did not issue a new report
following the company's earnings announcement.
``We believe (the stock) is attractive, but it's not without
issues, it's not without risk,'' he said.
Fremont also said he is keeping an eye on talks between Ohio
regulators and FirstEnergy about extending a rate freeze into 2006
and beyond and is watching for news about when the DavisBesse
nuclear plant will restart.
FirstEnergy's latest statement said it believes the plant, in Oak
Harbor along Lake Erie, will be ready to restart in the fall. Ever
since a large corrosion hole was found in March 2002 on top of the
plant's nuclear reactor, the company has issued statements saying it
believed Davis-Besse would be ready to restart in a matter of a
month or two. The Nuclear Regulatory Commission has final say.
``Clearly, management has lost all credibility in being able to
predict a reasonable timeframe for restart,'' Fremont said. ``I
think people pretty much ignore (company) statements on
Fremont and other analysts think it is likely that FirstEnergy
will issue more stock before the year is up to help its credit
rating. Fremont said he has already built an equity issue into his
analysis of the company's finances for this year.
Issuing new stock would dilute the shares held by existing
shareholders, Fremont said. In essence, the company would have the
same net income but spread it around more shares, meaning there
would be less net income per share, he said.
Analyst Warwick Busfield at Fahnestock & Co. downgraded
FirstEnergy from a ``buy'' to a ``neutral'' rating on Wednesday
because of the disappointing quarter and earnings