Is a Beat Likely for Southern Company (SO) in Q3 Earnings?

The Southern Company SO is set to release third-quarter 2020 results before the opening bell on Thursday, Oct 29. The current Zacks Consensus Estimate for the to-be-reported quarter is $1.24 per share on revenues of $5.9 billion.

Let’s delve into the factors that might have influenced the power supplier’s performance in the September quarter. But it’s worth taking a look at Southern Company’s previous quarter performance first.

Highlights of Q2 Earnings & Surprise History

In the last reported quarter, the Atlanta, GA-based service provider beat the consensus mark on cost control as well as positive effects of rates, usage and pricing changes. Southern Company had reported earnings per share (excluding certain one-time items) of 78 cents that surpassed the Zacks Consensus Estimate of 66 cents. However, the utility’s quarterly revenues of $4.6 billion had missed the Zacks Consensus Estimate of $5 billion on account of mild weather conditions.

As far as earnings surprises are concerned, Southern Company is on an excellent footing, having gone past the Zacks Consensus Estimate in each of the last four reports, with the average surprise being 11.98%. This is depicted in the graph below:

Southern Company The Price and EPS Surprise

Southern Company The Price and EPS Surprise

Southern Company The price-eps-surprise | Southern Company The Quote

Trend in Estimate Revision

The Zacks Consensus Estimate for the third-quarter bottom line has been revised 3.9% downward in the last seven days. However, the estimated figure indicates a 7.5% deterioration year over year. The Zacks Consensus Estimate for revenues, meanwhile, suggests a 2.4% decline from the year-ago period.

Factors to Consider This Quarter

Southern Company's seven major regulated utilities serve approximately nine million electric and natural gas customers. Leveraging the demographics of its operating territories, the firm has been successfully expanding its regulated business customer base. As part of that effort, Southern Company added 41,000 residential electric and 30,000 residential gas customers in 2019, a trend that most likely continued in the third quarter of 2020 because of healthy population growth across its electric and gas franchises.

Meanwhile, the power supplier’s operations and maintenance cost in the second quarter decreased 8.9% year over year to $1.3 billion. The downward cost trajectory is likely to have continued in the third quarter due to Southern Company’s aggressive cost-control initiatives.

The outbreak of the novel coronavirus has reduced industrial and commercial electricity demand. In particular, with approximately a third of the Southern Company’s total retail sales coming from industrial customers, a sluggish consumption pattern severely affects the fortunes of the firm as compared to the other utilities that are less dependent on the industrial component. However, this is likely to have been offset by higher residential demand. With the coronavirus containment measures forcing people to stay indoors and work from home, usage from the residential class is likely to have strengthened in the third quarter.

Why a Likely Positive Surprise?

Our proven model predicts an earnings beat for Southern Company this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases 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.

Southern Company has an Earnings ESP of +0.54% and a Zacks Rank #3.

Other Stocks to Consider

Southern Company is not the only utility looking up this earnings cycle. Here are some other firms from the space that you may want to consider on the basis of our model:

Pinnacle West Capital Corp. PNW has an Earnings ESP of +0.98% and a Zacks Rank #3. The firm is scheduled to release earnings on Oct30.

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

CMS Energy CMS has an Earnings ESP of +0.15% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Oct 29.

NiSource Inc. NI has an Earnings ESP of +25.00% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Nov 2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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