Back to top

Image: Bigstock

Here's How Southern Company (SO) Looks Ahead of Q1 Earnings

Read MoreHide Full Article

The Southern Company (SO - Free Report) is set to release first-quarter 2020 results before the opening bell on Thursday, Apr 30. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of 72 cents per share on revenues of $5.6 billion.

Let’s delve into the factors that might have influenced the power supplier’s performance in the March quarter. But it’s worth taking a look at Southern Company’s previous quarter performance first.

Highlights of Q4 Earnings & Surprise History

In the last reported quarter, the Atlanta, GA-based service provider beat the consensus mark on positive effects of rates and pricing changes, as well as lower operating expenses. Southern Company reported earnings per share (excluding certain one-time items) of 27 cents that surpassed the Zacks Consensus Estimate by a penny. Meanwhile, the utility’s quarterly revenues – at $4.9 billion – missed the Zacks Consensus Estimate of $5 billion on account of loss of revenues from asset dispositions.

As far as earnings surprises are concerned, Southern Company is on a solid footing, having gone past the Zacks Consensus Estimate in three of the last four reports, with the average positive surprise being 8.13%. This is depicted in the graph below:
 

Southern Company (The) Price and EPS Surprise

 

Southern Company (The) Price and EPS Surprise

Southern Company (The) price-eps-surprise | Southern Company (The) Quote

Trend in Estimate Revision

The Zacks Consensus Estimate for first quarter 2020 earnings per share remained same over the past 7 days. Nevertheless, the estimated figure indicates a 2.9% improvement from the year-ago reported earnings. The Zacks Consensus Estimate for revenues also suggests an increase from the prior-year reported figure of $5.4 billion.

Factors to Consider This Quarter

Southern Company's seven major regulated utilities serve approximately nine million electric and natural gas customers. Leveraging the demographics of its operating territories, the firm has been successfully expanding its regulated business customer base. As part of that effort, Southern Company added 41,000 residential electric and 30,000 residential gas customers in 2019, a trend that most likely continued in the first quarter of 2020 because of healthy population and job growth across its electric and gas franchises.

However, the power supplier’s operations and maintenance cost in the fourth quarter increased 2.4% to $1.7 billion. The rising cost trajectory is likely to have continued in the first quarter due to Southern Company’s Vogtle nuclear project-related expenditure and the significant spending needs associated with the sector’s capital intensive nature.

Further, the outbreak of novel coronavirus is likely to have negatively impacted Southern Company’s first-quarter earnings by steeply reducing industrial electricity demand. With approximately a third of the firm’s total retail sales coming from industrial customers, a sluggish consumption pattern severely affects the fortunes of Southern, as compared to other utilities that are less dependent on the industrial component.

What Does Our Model Say?

The proven Zacks model does not conclusively show that Southern Company is likely to beat estimates in the first quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, for this company stands at -0.12%.

Zacks Rank: Southern Company has a Zacks Rank of 3.

Stocks to Consider

While earnings beat looks uncertain for Southern Company, here are some firms from the utility 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 season:

Algonquin Power & Utilities Corp. (AQN - Free Report) has an Earnings ESP of +1.42% and a Zacks Rank #2. The firm is scheduled to release earnings on May 7.

You can see the complete list of today’s Zacks #1 Rank stocks here.

WEC Energy Group (WEC - Free Report) has an Earnings ESP of +0.25% and is Zacks #3 Ranked. The firm is scheduled to release earnings on May 4.

Consolidated Edison, Inc. (ED - Free Report) has an Earnings ESP of +0.69% and is Zacks #3 Ranked. The firm is scheduled to release earnings on May 7.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Published in