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Thu Jun 27, 2013, 02:56 PM

Southern Co Downgrade: not enough renewables, too much coal, risky nuclear

Southern Company Slips to Sell - Analyst Blog
By Zacks.com, June 21, 2013, 12:10:01 PM EDT


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.


Read more: http://www.nasdaq.com/article/southern-company-slips-to-sell-analyst-blog-cm254953#ixzz2XRbmrG4k

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Arrow 13 replies Author Time Post
Reply Southern Co Downgrade: not enough renewables, too much coal, risky nuclear (Original post)
kristopher Jun 2013 OP
bananas Jun 2013 #1
kristopher Jun 2013 #2
FBaggins Jun 2013 #3
kristopher Jun 2013 #4
FBaggins Jun 2013 #5
kristopher Jun 2013 #6
FBaggins Jul 2013 #7
kristopher Jul 2013 #8
FBaggins Jul 2013 #9
kristopher Jul 2013 #10
FBaggins Jul 2013 #11
kristopher Jul 2013 #12
FBaggins Jul 2013 #13


Response to bananas (Reply #1)

Sat Jun 29, 2013, 12:46 AM

2. I've been citing that report for years...

It states that if all the energy efficiency and renewable goals are met, new nuclear plants will have almost no market at all and that the entire nuclear fleet will only be utilized about half the time.

Since the conservative UK government had decided from day one that come hell or high water they were going to build new nuclear plants, we've seen some very interesting sabotage of their previously very effective efficiency and renewable programs.

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Response to kristopher (Reply #2)

Sat Jun 29, 2013, 05:52 PM

3. And the reason is clear enough...

... you find things that you agree with and decide that the source is credible... rather than looking for credible sources and using them to inform your opinion.

Ever heard of StarMine or Investars ratings? They put Zacks right down at the bottom in their track record analyzing the sector.

The real reason for SO to be in the sell column is that the company is overpriced relative to the industry (price/book and price/sales) and their EPS has been in a multi-quarter decline while they're overleveraged (and not just for nuclear power)

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Response to FBaggins (Reply #3)

Sun Jun 30, 2013, 07:31 PM

4. You're till shooting from the hip and missing by a mile...

The post you are replying to is discussing a Citigroup report, it has nothing to do with the OP.

Your attempt to shoot the messenger (not even counting your confusion on which post you're addressing) is a fail for its overt transparency.

Trying to hide the narrative in the OP behind technobabble is also a complete fail - again for its blatant transparency.

BTW - The OP listed 3 reasons for the problems with Southern - 1) too much emphasis on coal, 2) foolish risk-taking with a new nuclear venture, and 3) not enough focus on renewables.

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Response to kristopher (Reply #4)

Sun Jun 30, 2013, 08:04 PM

5. Lol... and coincidentally... you're still wrong.

Just as with the prior error that I apparently misread.

Ok... so what you were actually talking about is a 2009 move to "sell"? That's about the same time that you and Bananas were touting the expectations for growth in the solar manufacturing sector.

So shall we compare those two predictions? Citibank says "sell" SO in late 2009... but SO outperformed the S&P for most of the time since then and has only marginally underperformed (up 35% vs up 45%) to date. And do we really need to compare it to the performance of solar manufacturers over the same period?

I didn't think so.

BTW - The OP listed 3 reasons for the problems with Southern - 1) too much emphasis on coal, 2) foolish risk-taking with a new nuclear venture, and 3) not enough focus on renewables.

And that's the error I was correcting. The better houses have reasons that make far more sense.

Trying to hide the narrative in the OP behind technobabble is also a complete fail



I go out of my way to oversimplify and you still call it "technobabble"???

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Response to FBaggins (Reply #5)

Sun Jun 30, 2013, 08:35 PM

6. Seriously, are you on drugs or just drunk?

The Citigroup report isn't a buy/sell recommendation at all. It is an investor analysis of the market position of nuclear power in the EU it had nothing to do with Southern unless they were touting a plan to build a nuclear plant in the UK.
Were they?

Trying to cover your earlier cock-up by fabricating a supposed "touting" of "expectations for the growth in the solar manufacturing industry" circa 2009?

Really? How freaking pathetic can you get? First, I doubt we were "touting" any stock in any sector. Second, I seriously, seriously doubt we made ANY predictions about growth in the solar industry (writ large) that were excessive since the actual performance in that sector since China jumped in with both feet has been far greater than anyone hoped. And third, how fucking desperate do you have to be to support a utility building a nuclear plant that you would write this garbage? I mean really comparing observations on generic trends in the solar sector with a market sell report for a specific utility is your idea of a reasoned response. (see the header)

Since you insist we'll look at your "correction" of the OPs "error".

You wrote:
The real reason for SO to be in the sell column is that the company is overpriced relative to the industry (price/book and price/sales) and their EPS has been in a multi-quarter decline while they're overleveraged (and not just for nuclear power)

Overpriced relative to the industry is fine, no problem with that part; but then to say they are "in a multi-quarter decline while they're overleveraged" is pure technobabble when, in fact, you are just saying they spent too much money and the money they've spent/obligated isn't earning them any money and wont for an unknown length of time.

Both of those issues are the major reasons the much ballyhoo'd nuclear revival has been all fizzle and no flash.



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Response to kristopher (Reply #6)

Mon Jul 1, 2013, 06:30 AM

7. Oh silly me!

And here I was assuming that Bananas' link was in some way related to the title of the post and/or the OP. Now why would I assume that?

Trying to cover your earlier cock-up by fabricating a supposed "touting" of "expectations for the growth in the solar manufacturing industry" circa 2009? Really? How freaking pathetic can you get? First, I doubt we were "touting" any stock in any sector.


Yes. In 2009 you were talking about them as significantly undervalued. You can "doubt" that all you want... but we've already seen how your memory has convenient lapses... now haven't we?

Overpriced relative to the industry is fine, no problem with that part; but then to say they are "in a multi-quarter decline while they're overleveraged" is pure technobabble when, in fact, you are just saying they spent too much money and the money they've spent/obligated isn't earning them any money and wont for an unknown length of time.

That isn't what the "technobabble" said. Two companies can spend the same amount on the same things and have very different profit results (good or bad) over time depending on whether they finance those assets with capital or debt. Their EBITD is actually superior to most of the industry, but their high debt levels (particularly in a rising rate environment) hamper them. So their revenues can go up while their bottom line moves in the wrong direction (not just "can"... "has".

And no... anticipating your next error... the nuclear plant under construction represents a small proportion of their debt load (~10%)

Both of those issues are the major reasons the much ballyhoo'd nuclear revival has been all fizzle and no flash.

You're seriously able to look at the profitability of a single company and extrapolate the failure of a technology that makes up a small portion of that company's portfolio... while entirely ignoring the stock/profit performance of an entire sector that consists entirely of solar manufacturing? One is an indicator of a technology's future while the other is just an irrelevant sideshow?

How odd.

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Response to FBaggins (Reply #7)

Mon Jul 1, 2013, 07:15 AM

8. More of your empty 'knock knock' claptrap

You screwed up half a dozen different ways and can't redeem yourself with more horsepucky. Get a clue.

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Response to kristopher (Reply #8)

Mon Jul 1, 2013, 07:34 AM

9. Pounding the table again, eh?

Not a surprise.

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Response to FBaggins (Reply #9)

Mon Jul 1, 2013, 10:34 AM

10. Thanks for the bump.

"Please sir, may I have another."

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Response to kristopher (Reply #10)

Tue Jul 9, 2013, 06:38 PM

11. Right again... that link couldn't have been Citigroup's take on SO...

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Response to FBaggins (Reply #11)

Tue Jul 9, 2013, 07:02 PM

12. You're going to love this...

From the website hosting the story about CITI:


On Friday, analyst at Citigroup upgraded utility firm The Southern Company (SO), as they believe that the company will be able to navigate a number of potential obstacles.

<snip remainder of news story about CITI upgrade>

And the investment site has added this at the end of the story:
The Southern Company (SO) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.


http://www.dividend.com/news/2013/citigroup-upgrades-southern-company-to-buy-so/


This doesn't rehabilitate your upstream cockups.

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Response to kristopher (Reply #12)

Tue Jul 9, 2013, 07:37 PM

13. So Citi isn't a reliable source for you any longer?

But "dividend.com" is?

Got it.

Of course... then we would have to ignore that 3.4 is just below their "recommended - Best Dividend Stocks List" (and a long way from "avoid" and they're looking at it with a particular focus (as their name implies).

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