U.S. Markets closed

Will Southern Company (SO) Retain Earnings Beat Trend in Q4?

Zacks Equity Research

We expect Southern Company SO to beat expectations when it reports fourth-quarter 2018 results before the opening bell on Feb 20. The current Zacks Consensus Estimate for the quarter to be reported is a profit of 24 cents per share on revenues of $4.9 billion. Notably, the consensus estimate for EPS moved up a penny over the past 30 days.

In the preceding three-month period, the Atlanta, GA-based service provider beat the consensus mark by 6.54% on favorable regulatory results along with strength of its retail unit.

As far as earnings surprises are concerned, the electric utility firm is on an excellent footing, having surpassed the Zacks Consensus Estimate in each of the last four quarters, delivering average positive surprise of 9.53%. This is depicted in the graph below:

Southern Company (The) Price and EPS Surprise

Southern Company (The) Price and EPS Surprise | Southern Company (The) Quote

Investors are keeping their fingers crossed and hoping that the utility can continue winning ways by surpassing earnings estimates this time around too. On an encouraging note, our model indicates that Southern Company might beat on earnings in the to-be-reported quarter.

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

Why a Likely Positive Surprise?

Our proven model shows that Southern Company is likely to beat the Zacks Consensus Estimate in the quarter to be reported 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 +22.29%. This is because the Zacks Consensus Estimate for earnings per share is pegged at 24 cents, 5 cents below the Most Accurate Estimate of 29 cents. A favorable Earnings ESP serves as a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: Southern Company currently has a Zacks Rank #2 (Buy), which, when combined with a positive ESP, makes us confident of an earnings beat.

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

Conversely, 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.

Factors Likely to Shape Up Upcoming Results

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.

With operations in a stable and growing industry, Southern Company has a steady stream of cash flow. The utility’s history of consistent dividend payments indicates its confidence in itself. Last month, the company declared a dividend, marking the 285th consecutive quarterly payout.

We believe that the AGL Resources acquisition will be accretive to Southern Company’s earnings. The buyout has significantly increased the customer base of the firm, while diversifying business by adding gas-distribution assets. Focus on natural gas is likely to help the utility gain significant operational and commercial synergies, thus boosting the upcoming results.

Moreover, Southern Company’s strategic divestment deals with NextEra Energy, Inc. NEE and Global Atlantic Financial Group Ltd. have boosted the utility’s returns and cash flows, in addition to streamlining its portfolio.

We are of the opinion that the company’s strategic strides, steady business model and commitment toward attractive dividend payouts signal confidence and bode well for the upcoming results.

Other Stocks to Consider

Southern Company is not the only utility looking up this earnings season. Here are some firms from the same space that you may want to consider on the basis of our model, which shows that these too have the right combination of elements to post an earnings beat in the upcoming releases:

Pinnacle West Capital Corporation PNW is expected to release fourth-quarter results on Feb 22. It has an Earnings ESP of +4.17% and a Zacks Rank #2.

Alliant Energy Corporation LNT is expected to release fourth-quarter results on Feb 21. It has an Earnings ESP of +1.41% and a Zacks Rank #2.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 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 >>