Shares of Southern Company SO slipped to a 52-week low of $43.16 during the trading session on Jan 23. However, the stock recovered marginally to eventually close at $44.47, up around 1% from the closing price of Jan 22. The stock displayed weak price movement both in absolute and relative terms. Shares of the company have declined 8.5% over a year, underperforming the industry's rally of more than 2%.
Over the past 52 weeks, shares of Southern Company have traded between a low of $43.16 and a high of $53.51. The average volume of shares traded over the last three months is approximately 5.4 million.
Currently, the electric utility firm is grappling with a number of challenges. Let’s take a detailed look at the factors that have resulted in the new low for the stock.
Construction Projects — A Killjoy
The company is bearing the brunt of continued delays and cost overruns over two of its large construction projects — Vogtle and Kemper — which have weighed on Southern Company's fortunes.
Though Southern Company won Georgia PSC's nod for the construction of Vogtle plant in December 2017, the decision to proceed with the project has increased the credit risk of the company. The Vogtle project is being bankrolled with more than $8 billion in federal loans and loan guarantees. The project, which has been missing milestone dates and suffering from poor productivity rates, is likely to suffer owing to escalated costs. The increasing capital intensity of operations is likely to result in reduced returns and hurt the already weak financials of the company.
The weak economics of Kemper Project is also affecting the stock adversely. Kemper Project — touted to be a cutting-edge power plant which uses ‘clean coal’ technology — suffered a major setback with the suspension of all coal gasification operations. The project has been facing continuous criticism owing to its poor execution, cost overruns and multiple delays. The plant is already three years behind schedule and is over $4 billion beyond the stipulated budget. The overall cost of the plant was estimated to total to around $3 billion in 2010. However, with several delays adding to the project’s cost, the current price tag of the plant has ballooned over $7.3 billion, affecting the commercial viability of the project.
Soft Sales Mar Growth Prospects
Southern Company has been experiencing flat-to-low sales during the last few years from the impact of fluctuating weather conditions on overall consumer demand. Notably, the company's commercial, residential and industrial sales were down by 5.3%, 10% and 0.5% year over year, respectively, in the third quarter.
High Debt Burden Plays Spoilsport
Southern Company is reeling under high debt burden which restricts its financial flexibility and limits its ability to tap growth opportunities. The utility's long-term debt at the end of third quarter totaled over $44 billion, which represents a debt-to-capitalization ratio of more than 60%. Apart from a rise in immediate finance costs, the high debt level will also require significant cash flows for repayments.
Zacks Rank and Key Picks
Georgia-based Southern Company carries a Zacks Rank #4 (Sell).
A few better-ranked players in the same industry include Pampa Energia S.A. PAM, Algonquin Power & Utilities Corporation AQN and CenterPoint Energy, Inc. CNP. While Pampa Energia sports a Zacks Rank #1 (Strong Buy), Algonquin Power & Utilities and CenterPoint carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Pampa Energia delivered a positive earnings surprise of 585.7% in the last quarter.
Algonquin Power & Utilities delivered a positive earnings surprise of 30% in the last quarter.
CenterPoint Energy delivered average positive earnings surprise of 6.4% in the trailing four quarters.
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