Will This Downgrade Hurt The Southern Company (SO) Stock Today?

NEW YORK (TheStreet) -- Shares of The Southern Company (SO) are trading lower -0.41% to $45.63 in pre-market trading on Thursday following a ratings downgrade.

The holding company was downgraded to "sector perform" from "outperform" at RBC Capital.

The firm downgraded the company's rating based on a valuation call.

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TheStreet Ratings team rates SOUTHERN CO as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SOUTHERN CO (SO) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SO's revenue growth has slightly outpaced the industry average of 3.0%. Since the same quarter one year prior, revenues slightly increased by 6.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has significantly increased by 97.42% to $1,686.00 million when compared to the same quarter last year. In addition, SOUTHERN CO has also vastly surpassed the industry average cash flow growth rate of 42.87%.
  • SOUTHERN CO has improved earnings per share by 9.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SOUTHERN CO reported lower earnings of $1.87 versus $2.67 in the prior year. This year, the market expects an improvement in earnings ($2.76 versus $1.87).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Electric Utilities industry. The net income increased by 8.0% when compared to the same quarter one year prior, going from $399.00 million to $431.00 million.
  • Even though the current debt-to-equity ratio is 1.16, it is still below the industry average, suggesting that this level of debt is acceptable within the Electric Utilities industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.37 is very low and demonstrates very weak liquidity.
  • You can view the full analysis from the report here: SO Ratings Report

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