Southern Company: What Will Its 4Q15 Earnings Bring to Investors?

(Continued from Prior Part)

According to Wall Street analyst consensus, Southern Company (SO) has a one-year price target of $47.20, against its current market price of $47.10. Of the 21 analysts tracking Southern Company, 14 recommend it as a “hold,” while six recommend it as a “sell.” One analyst recommends it as a “buy.” We may see higher price targets for Southern Company once it completes its AGL Resources (GAS) acquisition.

As for peers, Duke Energy (DUK) has a one-year estimated upside of ~6% according to analyst estimates. It has a price target of $75.90 against its current market price of $71.80. Utility giant NextEra Energy (NEE) has an estimated price target of $117.60. This amounts to a possible upside of 11%. NextEra Energy is currently trading at $105.60.

Southern Company’s management estimates that its earnings for 4Q15 will come in at $0.43 per share. For the same period in 2014, the company’s earnings were $0.36 per share. Southern Company’s (SO) focus on its regulated operations could considerably improve its business risk profile. Regulated operations generally offer smooth growth and stable cash flows.

Southern Company’s efforts in capacity addition and its purchase of AGL Resources (GAS) are also expected to impact its earnings positively. After the completion of the acquisition, the company’s management expects its long-term earnings growth rate to accelerate to 4%–5% annually. Utilities are experiencing very low growth in the electric segment in the United States. Therefore, Southern Company’s expansion into the natural gas (UNG) business by acquiring AGL Resources will likely put it in a better place for future growth. Moreover, the company’s Vogtle nuclear plant will be operational after 2019. Continual delays and additional costs of this project may become a point of concern for Southern Company.

Browse this series on Market Realist:

• Part 1 - Southern Company Likely to Meet Fiscal 2015 Guidance
• Part 2 - Will Southern Company’s Revenues Beat Estimates in 4Q15?
• Part 3 - Analyzing Southern Company’s Debt Profile and Spending Plan