Southern Co Downgrade: not enough renewables, too much coal, risky nuclear [View all]
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.
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