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This Electric Utility Company Is Set for Better Times Ahead

August 29, 2014 | About:
kcpl

kcpl

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Electric utility firm Southern Company (SO) released strong results for the second quarter. The results were terrific and were more than what the company had expected. The company posted impressive growth in earnings as a result of good electricity sales. It is focusing on driving its operational execution to better levels, and with the constructive results on the board, Southern Company is well positioned for a better quarter in the future.

Strong momentum

On the financial part, Southern Company’s revenue was up 5.2% to $4.47 billion, which beat analysts’ estimates of $4.32 billion on the top line. The key reason behind Southern Company’s growth was the increase in sales. Total energy sales, including wholesale sales, increased 4.7% in the second quarter. The profit came in at $628 million. Southern Company is soaring. The electric utility firm has improved a lot from last year’s same quarter, posting a massive difference in earnings per share.

Southern Company managed to achieve major milestones in two of its major construction projects. The company is seeing good progress at Plant Vogtle, and with the completion of the plant, Southern Company is optimistic for better operational execution driving its sales in the future. Further, the completion of the CA05 module for Unit 3 of the plant will add more value to it. The company is expecting it to be completed in September.

Concerns and catalysts

However, Southern Company is seeing weakness in its profits due to the Kemper County Project. The company is working on the showcase technology to generate clean electricity from low-quality coal. This increased the expenses, which made the Kemper County Project the most expensive fossil fuel plant ever built in the U.S.

Moving forward, Southern Company is engaged in resolving and negotiating many issues. On the other hand, Mississippi Power continues to engage constructively with the Mississippi Public Utilities Commission staff and is expecting to drive out something productive from the discussions and negotiations that are going on with Mississippi Public Utilities Commission staff.

Now, Southern Company is focusing mainly on profitable ventures. It has closed down some unproductive projects such as acquisition of the Macho Springs Solar Facility by Southern Power and Turner Renewable Energy, which were closed during the second quarter. In addition, Southern Power is seeking new solar and natural gas projects with a long-term contract to strengthen its long-term prospects.

Southern Company is positive about sales in the future. The company has proved itself with 13 consecutive quarters of sales growth. Also, the ISM Manufacturing Index is above 50, which is clearly signaling that Southern Company has lucrative chances of expansion that will boost its sales. Moreover, the exports are also playing an important role in Southern Company’s growth. Southern Company has seen good response from the exports from states such as Alabama and Georgia

Moving to housing, Southern Company is seeing a slow recovery, which indicates weak home sales. The survey by Atlanta Federal Reserve further supports this fact. Southern Company is also expecting the prices to rise due to a fall in the inventory levels.

Conclusion

At a trailing P/E of 20.18, the company looks promising. Its forward P/E of 15.27 shows good earnings growth in the future. Its dividend yield of 4.90% is another attractive point. Southern Company looks like a good bet for investors considering its catalysts.


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