Southern Company Beats Q3 Estimates, Stock Soars

Regulated utility Southern Company (SO) reported its third-quarter earnings today. Its EPS rose YoY (year-over-year) from $1.34 to $1.14, beating analysts’ estimate.

Southern Company stock looks strong

Investors may have also been happy about the company’s Plant Vogtle developments. Southern Company has maintained its Plant Vogtle schedule and budget. The project is approximately 81% complete. At the time of the last quarterly release, the project was 79% complete. As of 10:15 am ET, SO stock had risen 2.4% today.

No change in Vogtle cost estimate

Plant Vogtle is the country’s only nuclear power plant under construction. In the last few years, its cost overruns and project delays have dented Southern Company’s financials. The project has been delayed for five years and the estimated cost has increased to $27 billion, double its original estimate. However, earlier this year, favorable developments on the Vogtle project boosted SO stock.

This year, Southern Company stock is up more than 40%, outperforming peers. Defensive sectors have remained in focus this year amid global slowdown and recession fears. The Utilities Select Sector SPDR ETF (XLU) has soared more than 20% this year, in line with the S&P 500.

Southern Company’s third-quarter earnings

In the third quarter, Southern Company’s total revenue fell 2.6% YoY to $6 billion, possibly due to the sale of its subsidiary, Gulf Power, in January. Meanwhile, its kilowatt-hour sales fell 4.7% YoY and its customer count fell more than 4%. This year, Southern Company expects EPS of $2.98–$3.10, representing flattish YoY growth.

How’s the stock placed?

Despite the company releasing fair Q3 earnings, Southern Company stock may not see a significant upside from here. The stock, after an unusual rally this year, is trading at a large premium to its historical average and 19 times analysts’ forward estimate. Also, its five-year average PE multiple of 17x looks unwarranted given the company’s flattish growth.

The biggest utility stock by market cap, NextEra Energy (NEE), is trading at 26 times analysts’ forward earnings estimate. The stock is up more than 32% year-to-date. NextEra Energy is one of the industry’s fastest-growing utilities. In the third quarter, its EPS rose 10% YoY to $2.39.

Southern Company: Analysts’ price targets

Analysts don’t foresee a big upside for SO stock in the next year. Their mean price target is $60.28, whereas SO’s current price is $60.92. Of the 19 analysts tracking SO stock, 12 suggest “hold,” two suggest “buy,” four suggest “sell,” and one suggests “strong sell.”

Meanwhile, analysts’ mean price target for NextEra is $237.91, which implies an upside of just 2% from its current price of $232.60. For more on utilities, read Finding the Top Dividend Stock among Utilities and Why Utilities Could Keep Smashing in the Fourth Quarter.