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Southern Co. (SO) Down 5.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Southern Co. (SO). Shares have lost about 5.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Southern Co. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Southern Company Q2 Earnings Beat Estimates, Sales Miss Mark

Southern Company reported second-quarter 2020 earnings per share (excluding certain one-time items) of 78 cents, surpassing the Zacks Consensus Estimate of 66 cents. The robust performance primarily stemmed from cost control as well as positive effects of rates, usage and pricing changes.

However, the Atlanta-based utility’s bottom line compared unfavorably with the year-ago adjusted profit of 80 cents, reflecting the impact of mild weather conditions.

Meanwhile, the utility reported revenues of $4.6 billion, which missed the Zacks Consensus Estimate of $5 billion and was 9.4% lower than second-quarter 2019 sales.

The company, which gave an EPS guidance of $1.15 for the third quarter, further updated that the consequence of the ongoing coronavirus epidemic on its retail sales has been lower than expected. Southern Company still sees the pandemic’s impact on this year’s base revenues of $250-400 million that can be offset through cost containment measures. The utility though cautioned that the economic uncertainties are far from over and will linger through the second half of 2020.

Vogtle Updates

Per Southern Company’s latest earnings presentation, it continues to progress toward completing the Units 3 and 4 of the Vogtle nuclear project by the November 2021 and November 2022 regulatory approved in-service dates. However, subsidiary Georgia Power's share of total costs has increased by approximately $150 million, primarily stemming from coronavirus-induced disruptions.

Overall Sales Breakup

Southern Company’s wholesale power sales decreased 5.1%. There was also a steep fall in retail electricity demand.

Consequently, there was a downward movement in overall electricity sales and usage. In fact, total electricity sales during the second quarter were down 10.1% from the same period last year.

Southern Company’s total retail sales were down 11.7%, with residential and commercial sales going down by 5.6% and 15%, respectively. Moreover, industrial sales declined 14%.

Expenses Summary

The power supplier’s operations and maintenance cost was down 8.9% to $1.2 billion, while the utility’s total operating expense for the period – at $3.6 billion – fell 5.2% from the prior-year level.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.44% due to these changes.

VGM Scores

Currently, Southern Co. has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Southern Co. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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