We expect electric utility firm Southern CompanySO to beat expectations when it reports fourth-quarter 2016 results before the opening bell on Wednesday, Feb 22.
What Investors Need to Know
The company's stock performance has been pretty unimpressive lately. Southern Company has underperformed the Zacks categorized 'Utility-Electric Power' industry across the past six months- and 1-year periods. In fact, Southern Company scrip has lost 1.5% in the past 1 year, compared to the industry which has advanced almost 2% over the same period.
Moreover, The Atlanta, GA-based service provider has a poor industry rank. It is one of the major players in the 'Utility-Electric Power' industry, which is ranked 149 out of the 265 industries in our coverage (bottom 44%). Southern Company also has a Zacks Rank #3 (Hold), so fundamentals are pretty tepid for this stock.
Therefore, it will be up to this coming release to help improve the price performance and set the trend for 2017.
However, on an encouraging note, the power supplier has an excellent record: its beaten estimates in each of the last four quarters, resulting in an average positive surprise of 7.71%, as you can see in the chart below:
Southern Company (The) Price and EPS Surprise
To make things better, it has a 'B' for its VGM Score .
In the preceding three-month period, Southern Company delivered a positive earnings surprise of 9.40% on robust performance from its wholesale unit and favorable weather conditions.
Let's see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Southern Company - one of the largest generators of electricity in the nation along with the likes of Exelon Corp. EXC - is likely to beat earnings in the to-be-reported quarter because it has the right combination of two key ingredients.
Zacks ESP:Earnings ESP for this company is +6.45%. This is because the Most Accurate estimate stands at 33 cents, whereas the Zacks Consensus Estimate is pegged lower at 31 cents. A favorable Zacks ESP serves as a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Zacks Rank: Southern Company carries a Zacks Rank #3 (Hold) which, when combined with a positive ESP, makes us confident of an earnings beat.
Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. On the other hand, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
What is Driving the Better-Than-Expected Earnings?
A leading utility holding entity in the U.S., 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.
Also, 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.
We further believe that the AGL Resources acquisition will be accretive to Southern Company earnings.
Finally, strong performance from its large regulated asset base is expected to favorably affect Southern Company's fourth quarter overall electricity sales and usage.
Other Stocks to Consider
Southern Company is not the only utility looking up this earnings season. Here are some companies from the space which, according to our model, also have the right combination of elements to post earnings beat this quarter:
Spark Energy Inc. SPKE has an Earnings ESP of +14.43% and a Zacks Rank #1. The utility is expected to release earnings results on Mar 9. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Pinnacle West Capital Corp. PNW has an Earnings ESP of +2.04% and a Zacks Rank #2. The utility is likely to release earnings on Feb 24.
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