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Is a Beat Likely for Southern Company (SO) in Q2 Earnings?

Nilanjan Choudhury

We expect Southern Company SO to beat expectations when it reports second-quarter 2019 results before the opening bell on Wednesday, Jul 31. The current Zacks Consensus Estimate for the quarter under review is a profit of 72 cents per share on revenues of $5.2 billion.

In the last reported quarter, the Atlanta, GA-based service provider came out with in-line earnings as lower costs and expenses were offset by declining sales from the retail segment and the divestment of its Gulf Power subsidiary in May last year.

As far as earnings surprises are concerned, the electric utility firm is on an excellent footing, having met/gone past the Zacks Consensus Estimate in each of the last four reports. 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

Investors are keeping their fingers crossed and hoping that the utility can continue winning ways by surpassing earnings estimate this time around too. Thankfully, our model indicates that Southern Company might beat on earnings in the first quarter.

Let’s delve deeper and find out the factors impacting the results.

Why a Likely Positive Surprise?

Our proven model shows that Southern Company is likely to beat the Zacks Consensus Estimate this quarter as it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and Zacks Rank #3 (Hold) or higher for increasing the odds of an earnings beat.

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, is +0.46%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Southern Company currently has a Zacks Rank of 3, which, when combined with a positive ESP, makes us confident of earnings beat. 

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

What is Driving the Better-Than-Expected Earnings?

A leading utility holding entity in the United States, Southern Company dominates the power business across the Southeast. With a strong rate base growth and constructive regulation, we expect the firm to generate steady earnings.

Also, with operations in a stable and growing industry, Southern Company has a steady stream of cash flow. Notably, Southern Company gets around 90% of its earnings from regulated operations that result in predictable earnings stream for the utility. Southern Company’s history of consistent dividend payments indicates its confidence in itself. In fact, management has reiterated its long-term EPS growth rate guidance of approximate 5% growth in the next few years.

We further believe that the AGL Resources acquisition will be accretive to Southern Company earnings.

Other Stocks to Consider

Southern Company is not the only utility looking up this earnings season. Here are some firms from the 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:

Entergy Corporation ETR has an Earnings ESP of +1.40% and a Zacks Rank #2 (Buy). The utility is anticipated to release earnings on Jul 31. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Exelon Corporation EXC has an Earnings ESP of +0.27% and a Zacks Rank #3. The utility is anticipated to release earnings on Aug 1.

Northwest Natural Holding Company NWN has an Earnings ESP of +29.41% and a Zacks Rank #3. The utility is anticipated to release earnings on Aug 6.

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