On Jun 20, Zacks Investment Research downgraded electric
), to a Zacks Rank #4 (Sell).
ALLETE INC (ALE): Free Stock Analysis Report
CPFL ENERGI-ADR (CPL): Get Free Report
COPEL-ADR PR B (ELP): Free Stock Analysis
SOUTHERN CO (SO): Free Stock Analysis Report
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Why the Downgrade?
Southern Company witnessed sharp downward estimate revisions
after reporting weak first-quarter 2013 results. On Apr 24, 2013,
Southern Company reported first-quarter 2013 earnings per share
(excluding certain one-time charges) of 49 cents, below the Zacks
Consensus Estimate of 51 cents. The weaker-than-expected results
could be attributed to spiraling expenses.
Moreover, Southern Company's total operating expense for the
first quarter of 2013 stood at $3,572.0 million, approximately
25.9% higher than the prior-year level.
Additionally, Southern Company's heavy reliance on coal-generated
energy supply and a lack of meaningful contribution from
renewable energy is a matter of concern. In the current age of
growing emphasis on 'environment friendly or green' energy, the
company may be forced to divert cash flow to ensure regulatory
compliance, which can adversely impact profitability.
We also remain skeptical regarding Southern Company's $14 billion
investment for the construction of two new reactors at the
company's existing nuclear site in Vogtle, Georgia. With a fair
chance of cost overruns and likely modifications - to fully
address the safety risks exposed by the meltdown at Japan's
Fukushima plant last year following a devastating earthquake and
tsunami - the project cost could easily end up around $20
billion. This will substantially increase Southern Company's
leverage and deteriorate its credit metrics.
A combination of all these factors weighed on the earnings
estimates for Southern Company in the last 60 days. The Zacks
Consensus Estimate for the second quarter of 2013 has gone down
to 69 cents per share from 70 cents per share, while it dropped
to $2.75 per share from $2.76 per share for 2013.
Stocks to Consider
Not all electric utility firms are performing as poorly as
Southern Company. The stocks of
Companhia Paranaense de Energia
CPFL Energia SA
) are worth considering. Companhia and CPFL Energia sport a Zacks
Rank #1 (Strong Buy), whereas ALLETE carries a Zacks Rank #2