Credit Suisse Maintains FirstEnergy (FE) Neutral Rating

Credit Suisse analysts Dan Eggers, Kevin Cole, Yang Y. Song and LinLin Sun maintained their Neutral rating for shares of FirstEnergy Corporation (NYSE: FE), with a price target of $44.

The analysts updated their earnings estimates for 2010-2012 earnings to $3.69, $3.83, and $4.05 from $3.59, $3.87, and $4.01, respectively.

Some of the risks facing FirstEnergy Corporation, noted by the analysts, were long-term instability in gas prices, nuclear re-licensing risk, nuclear operational risk and leasehold expiration risk.

The Credit Suisse analysts wrote, "we calculate our $44 target price on FE by the sum-of-the-parts method, which in turn is based on discounted cash flow (DCF) and traditional multiple methodologies (including earnings before interest, taxes, and depreciation (EBITDA) multiple and earnings multiple) (All multiples used are generally in line with the market). Valuing First Energy Solutions we use an average 8.5% discount rate 7.5x 2009 EBITDA and 6.5x 2013 EBITDA discounted to 2009. Valuing Utilities in Ohio, Pennsylvania, and New Jersey we use an average 7.2% discount rate and 13.0x price to earnings multiple on 2012 earnings discounted to 2009. Valuing ATSI we use an average 7.0% discount rate and 7.0x 2012 EBITDA discounted to 2009. Valuing Corporate & Other we use an average 8.3% discount rate. We also accommodate for a probability weighted value impact from potential carbon legislation. We calculate asset specific gross margin changes with carbon pricing by calculating the impact to revenues per unit of generation (MWh) (function of market clearing power prices and any value from allocated credits), costs per MWh, and changes to asset utilization. We then discount the after tax gross margins using an assumed 50 year asset life DCF on a 10% discount rate."