FirstEnergy (FE) shares dropped on Wednesday as analysts downgraded the stock amid a federal bribery investigation tied to an Ohio legislator.
The FBI charged that Ohio House Speaker Larry Householder and four associates took $60 million in bribes to support a $1.5 billion government bailout of FirstEnergy’s nuclear plants, reports say. They were arrested Tuesday.
As for analyst reaction, “we can no longer recommend the stock after the Department of Justice/FBI arrests and investigations announced yesterday,” Scotiabank analyst Andrew Weisel wrote in a commentary cited by Bloomberg.
He cut his rating on the stock to sector perform from sector outperform and slashed his share-price target to $39 from $53.
Weisel doesn’t see a “scenario in which shares outperform peers over the next 12 months.”
KeyBanc analyst Sophie Karp cut her rating to sector weight from overweight.
While it looks like the government doesn’t intend to indict FirstEnergy or its officials, the company’s risks are “reputational and political and, as such, hard to quantify,” she wrote in a report cited by Bloomberg.
Guggenheim analyst Shahriar Pourreza wrote in a commentary that for now, “we believe FE will remain a value trap as investors steer clear of the uncertainty,” Bloomberg reports.
He downgraded the company to neutral from buy, reducing his price target to $36 from $51.
Barclays analyst Eric Beaumont downgraded FirstEnergy to equal weight from overweight, with a $37 price target.
Shares of FirstEnergy, Akron, Ohio, recently traded at $28.88, down 16%. The stock has dropped 42% year to date.