Southern’s Long-Term Earnings Growth Still on Track Despite Another Vogtle Delay

We are reaffirming our $67 fair value estimate for Southern after the company reported earning $3.60 per share on an adjusted basis in 2022, up 5.6% from 2021. We are reaffirming our narrow moat and stable moat trend ratings.

Earnings were slightly higher than our estimate and at the high end of management’s 2022 guidance range primarily due to favorable weather. This does not have a material impact on our fair value estimate as we assume normal weather in our forecasts. Southern’s stock now trades near our fair value estimate after falling 18% from its September 2022 peak.

Favorable weather added $0.17 per share to earnings in 2022 and will be a headwind to offset in 2023. We expect mostly flat earnings in 2023 on a weather-normalized basis, in line with management’s $3.55 to $3.65 per share guidance range. We continue to forecast 6% long-term weather-normalized annual earnings growth, in line with management’s 5%-7% target.

Management pushed back by one quarter the expected in-service dates for new Vogtle Units 3 and 4 due to testing issues that the company previously announced. We now expect Unit 3 online during the second quarter and Unit 4 online during the first quarter of 2024. The related $150 million after-tax charge in the fourth quarter doesn’t have a material impact on our fair value estimate.

Management lowered its 2024 EPS guidance range to $3.95-$4.10, reflecting $0.05 related to the additional Vogtle delay. Our 2024 estimate already was below management’s previous 2024 guidance range, so this change has no impact on our outlook or valuation.

We plan to raise our capital investment forecast to include about $2 billion of new investments reflected in management’s updated $43 billion five-year plan. We now forecast an average $8.6 billion of annual capital investment in 2023-25, excluding Vogtle. This will have a slight positive impact on our 2024-25 earnings estimates.