It’s not like they weren’t warned, about coal and about nukes. It’s not Standard & Poor’s this time, but that could happen soon, too. SO’s biggest part, Georgia Power, is neck-deep in nukes, as Edison Electric Institute’s warning about the disruptive challenge of distributed solar starts to affect its parent’s stock price.
Zacks.com wrote 21 June 2013, Southern Company Slips to Sell – Analyst Blog
On Jun 20, Zacks Investment Research downgraded electric utility firm, Southern Company ( SO ), to a Zacks Rank #4 (Sell).
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.
Michael Flannelly wrote for The Dividend Daily 14 June 2013, Jefferies Downgrades Southern Company to “Hold” (SO),
Jefferies analyst Paul Fremont commented, “With the current investor focus over lower ROEs and cost over-runs at the Kemper County IGCC plant, Jefferies believes that the stock will continue to trade at a group average P/E multiple versus its historical 5-15% premium. Our upgrade was predicated on trading SO at a premium multiple, so we have revised our price target to reflect our updated views and believe the stock is fair value at current levels.”
SO’s price when Flannelly wrote that was $44.65 and Jefferies set a target of $46, or projected upside of about 3%. SO is $43.33 as I write, which is down about 3%, or almost 6% from Jefferies’ target.
Georgia Power and SO can keep dragging their feet on solar and wind like the telcos did about packet switching and be outflanked by upstarts like SolarCity (SCTY). Or they can get on with what Georgia Trend just noted everybody wants them to do.
Disclosure: I own both SO and SCTY, as I mentioned to SO CEO Tom Fanning back at the May stockholder meeting (when SO price was $46), although not for the entire period since then.