FirstEnergy Stock Needs a Charge Ahead of Earnings

FE has traded in a tight range the last month

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Utility company FirstEnergy Corp. (NYSE:FE) is down 1.4% to trade at $36.96 at last check. Despite a 20.8% year-to-date lead, FE has traded in a tight range the last month between $37-$38. Normally this wouldn't be newsworthy, but FirstEnergy will report earnings a week from today on Thursday, July 22 after the close. Below, we'll dig into FE's post-earnings history.

The company has beat earnings expectations on three of its last four earnings reports. However, all four of FE's post-earnings reactions in the last 12 months have been to the positive, including a 7.2% pop back in February. But investors should know that the shares are rather muted after reports; FE averages a post-earnings move of 2.4% in the last eight quarters, regardless of direction.

From a fundamental point of view, FirstEnergy stock still has an attractive valuation despite the 20% move already this year. FirstEnergy stock currently trades at a good price-earnings ratio of 15.19. However, the company has experienced a constant decline in revenues over the past few years. Since fiscal 2017, revenues have decreased by 23%. The utilities company has also shown inconsistent growth on the bottom-line. FirstEnergy posted a 33% decline to annual net income as recently as fiscal 2019, which creates doubts around the company’s fundamentals and business model.

Options that risk overhead exposure could be an intriguing route. The stock's Schaeffer's Volatility Index (SVI) of 21% stands in the 8th percentile of all other readings from the past year, suggesting options traders are pricing in extremely low volatility expectations right now. What's more, its Schaeffer's Volatility Scorecard (SVS) stands at 70 out of a possible 100. This  means the stock tends to exceed these volatility expectations -- a good thing for buyers. 

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