UPDATE: Credit Suisse Downgrades FirstEnergy to Neutral, Lowers PT Following RPM Auction Results

In a report published Tuesday, Credit Suisse analyst Dan Eggers downgraded the rating on FirstEnergy FE from Outperform to Neutral, and lowered the price target from $45.00 to $40.00.

In the report, Credit Suisse noted, “We have liked FE shares over peers for some time, attracted to the large base of regulated utility earnings (73% of 2015) that to us better protected the rich 5.2% dividend yield as well as management's commitment to, and success in, finding ways to extract value from the generation business (FES) in spite of sustained weak power market conditions through the early adoption of Retail, aggressive O&M controls, and fleet management through plant closures and seasonal dispatch until unit economics improved. We still see FE striving to do these things but the ugly reality of the 2016/17 RPM auction results are hard to deny: poor discipline by incumbent generators in the face of depressed forwards and the crushing impact of newbuild capacity plus greater imports are all contributing to an oversupplied market that will inevitably leave energy and capacity prices weak. We are lowering FE to Neutral (from Outperform) - meaning performance in-line with peers - and a target of $40 (from $45) built from our sum-of-the-parts valuation methodology. We see downside from here in all of the Integrated power names as the long and uncertain path to a power market recovery forces investors to reconsider the multiples paid for commodity cyclical power generation assets.”

FirstEnergy closed on Friday at $42.62.