Will Southern Co. (SO) Stock Be Negatively Affected By This Ratings Downgrade?

NEW YORK (TheStreet) -- The Southern Company (SO) was downgraded to “underweight” from “equal-weight” at Morgan Stanley (MS) on Wednesday.

The firm said it lowered its rating on the holding company, which owns common stock in companies such as Alabama Power (ALP-N), Georgia Power (GPE-A), and Mississippi Power (MP-D), due to its belief Southern will deliver a small earnings growth and has a nuclear overhang.

Morgan Stanley cut its price target on the stock to $40 from $46. 

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Shares of The Southern Co. are down by -0.51% to $43 in pre-market trading.


Separately, 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 several positive factors, 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, compelling growth in net income, impressive record of earnings per share growth and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

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

  • SO's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 5.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electric Utilities industry. The net income increased by 100.6% when compared to the same quarter one year prior, rising from $313.00 million to $628.00 million.
  • SOUTHERN CO reported significant earnings per share improvement 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 ($2.79 versus $1.87).
  • 35.97% is the gross profit margin for SOUTHERN CO which we consider to be strong. Regardless of SO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SO's net profit margin of 14.05% compares favorably to the industry average.
  • In its most recent trading session, SO has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it is one of the factors that makes this stock an attractive investment.
  • You can view the full analysis from the report here: SO Ratings Report
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