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Will Southern Company (SO) Q3 Ruin the Earnings Streak?

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Electric utility firm Southern Company (SO - Free Report) is set to release its third-quarter 2016 results before the opening bell on Monday, Oct 31.

In the preceding three-month period, the Atlanta, GA-based service provider delivered a positive earnings surprise of 7.25% on robust performance from its wholesale unit.

Coming to earnings surprise history, the utility has an excellent record: its beaten estimates in each of the last four quarters, resulting in an average positive surprise of 5.58%.

SOUTHERN CO Price and EPS Surprise

 

SOUTHERN CO Price and EPS Surprise | SOUTHERN CO Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

The operating results of Southern Company are affected by weather conditions and may vary on a seasonal and quarterly basis. Electric power supply is usually a seasonal business. In several regions of the country, demand for power peaks during the summer months, along with market prices. In other areas, power demand reaches its maximum during the winter. But with this year’s late summer turning out longer and hotter than normal, Southern Company’s third quarter retail electricity demand might get a boost.

However, with customer growth tepid and likely to remain so for some time, sales are likely to be affected. This together with a large base, might make it difficult for Southern Company to manage rates.

Earnings Whispers

Our proven model does not conclusively show that Southern Company will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at $1.17.

Zacks Rank: Southern Company has a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

While earnings beat looks uncertain for Southern Company, here are some firms from the utilities space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:

Ameren Corp. (AEE - Free Report) has an Earnings ESP of +2.90% and a Zacks Rank #2. The partnership is expected to release earnings results on Nov 4. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CMS Energy Corp. (CMS - Free Report) has an Earnings ESP of +3.33% and a Zacks Rank #2. The company is likely to release earnings on Oct 27.

American Water Works Company Inc. (AWK - Free Report) has an Earnings ESP of +2.00% and a Zacks Rank #2. The partnership is anticipated to release earnings on Nov 2.

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