Southern Company’s earnings growth in the near term
Southern Company (SO) forecasts a 3% to 4% rise in earnings each year until fiscal year 2016. Southern Company is a mature, blue-chip power company that is expected to grow at a modest single-digit growth rate.
Potential drivers of growth
A major part of Southern Company’s earnings growth will come from increased capacity. Southern Company is investing in both its regulated and unregulated divisions toward building new-generation capacities. It plans to spend $5.2 billion in the next two years to add new capacities.
For fiscal years 2015 and 2016, Southern Company expects its earnings to be in the range of $2.81 to $2.91 per share and $2.89 to $3.03 per share, respectively.
Tight guidance range and high accuracy
It is important to note that Southern Company’s management has been fairly accurate in forecasting the company’s near-term earnings. In the last ten years, Southern Company has never missed its guidance estimates. Also, it has the smallest guidance range among all power companies that are part of the Utilities Select Sector Standard & Poors depositary receipt (or SPDR) (XLU).
Regulated utility companies such as Dominion Resources (D) and Duke Energy (DUK) have a tight guidance range due to their stable and predictable business model. On the other hand, companies such as Exelon Corporation (EXC) with a high exposure to the unregulated power business provide a wider guidance range due to the volatility in their earnings.
For the full year 2014, Southern Company expects earnings of $2.72 to $2.80 per share. The company’s adjusted earnings have been $2.43 per share for the first nine months of fiscal year 2014 and should end the year within or above the guidance range.