Back to top

Analyst Blog

On Jun 20, Zacks Investment Research downgraded electric utility firm, Southern Company (SO - Analyst Report), to a Zacks Rank #4 (Sell).

Why the Downgrade?

Southern Company witnessed sharp downward estimate revisions after reporting weak first-quarter 2013 results. On Apr 24, 2013, Southern Company reported first-quarter 2013 earnings per share (excluding certain one-time charges) of 49 cents, below the Zacks Consensus Estimate of 51 cents. The weaker-than-expected results could be attributed to spiraling expenses.

Moreover, Southern Company’s total operating expense for the first quarter of 2013 stood at $3,572.0 million, approximately 25.9% higher than the prior-year level.

Additionally, Southern Company’s heavy reliance on coal-generated energy supply and a lack of meaningful contribution from renewable energy is a matter of concern. In the current age of growing emphasis on ‘environment friendly or green’ energy, the company may be forced to divert cash flow to ensure regulatory compliance, which can adversely impact profitability.

We also remain skeptical regarding Southern Company’s $14 billion investment for the construction of two new reactors at the company’s existing nuclear site in Vogtle, Georgia. With a fair chance of cost overruns and likely modifications – to fully address the safety risks exposed by the meltdown at Japan's Fukushima plant last year following a devastating earthquake and tsunami – the project cost could easily end up around $20 billion. This will substantially increase Southern Company’s leverage and deteriorate its credit metrics.

A combination of all these factors weighed on the earnings estimates for Southern Company in the last 60 days. The Zacks Consensus Estimate for the second quarter of 2013 has gone down to 69 cents per share from 70 cents per share, while it dropped to $2.75 per share from $2.76 per share for 2013.  

Stocks to Consider

Not all electric utility firms are performing as poorly as Southern Company. The stocks of Companhia Paranaense de Energia (ELP - Analyst Report), CPFL Energia SA (CPL - Snapshot Report) and ALLETE Inc. (ALE - Snapshot Report) are worth considering. Companhia and CPFL Energia sport a Zacks Rank #1 (Strong Buy), whereas ALLETE carries a Zacks Rank #2 (Buy).

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SUPER MICRO… SMCI 27.00 +10.25%
CANADIAN SO… CSIQ 38.34 +8.18%
BANCO DO BR… BDORY 16.78 +8.05%
CENTURY ALU… CENX 26.97 +7.97%
WILLDAN GRO… WLDN 11.38 +5.86%