SO: Equity Offering and Bearish Techs – Time for Puts?

Southern Company is a holding company with subsidiaries involved in electricity and natural gas. Its core business includes traditional electric operating companies like 'Alabama Power', 'Georgia Power', and 'Mississippi Power', which provide electric service to retail and wholesale customers in the Southeast. 'Southern Power' develops and manages power generation assets, selling electricity at market-based rates. 'Southern Company Gas' distributes natural gas in Illinois, Georgia, Virginia, and Tennessee. The company differentiates itself through its integrated system operations, where the utility assets of the traditional electric operating companies and certain assets of Southern Power are operated as a single 'Southern Company power pool'. Southern Company Gas also invests in gas pipelines and offers gas marketing services through 'SouthStar'.

The Southern Company's announcement of a $1.75 billion equity units offering is the primary driver of this short-term bearish outlook. Equity offerings typically dilute existing shareholders, placing downward pressure on the stock price. The offering of 35 million equity units, each with a stated amount of $50, represents a significant increase in the company's outstanding shares. While the funds raised could be used for growth initiatives or debt reduction in the long term, the immediate market reaction is often negative due to the dilution effect. The inclusion of forward stock purchase contracts and senior notes within the equity units structure adds complexity but doesn't negate the dilutive impact. Given the magnitude of the offering, a downward price movement is anticipated for SO over the next 1-2 weeks, as the market absorbs the news and adjusts its valuation to account for the increased share count. The absence of offsetting positive news reinforces this bearish sentiment.

SO's technical outlook is bearish, indicating a potential downtrend over the next 1-3 months. The recent price action confirms a downward trajectory, with the price closing at $92.755, significantly below its recent highs and below the 21-day EMA of $95.39. The MACD at -0.24 is negative and diverging further below its signal line, reinforcing bearish momentum. The RSI of 39.19 is below 50, indicating further weakness. While the price remains above the 50-day SMA ($94.28) and the 200-day SMA ($90.74), the breach of the 21-day EMA suggests a potential test of these longer-term averages. The stochastic oscillator (STOCHk at 17.95) is in oversold territory but has not yet shown signs of reversing. The ADX at 23.36 indicates a defined trend is in place. Recent price declines and bearish momentum suggest further downside potential. The 52-week high of $100.84 provides resistance, while the 52-week low of $80.46 suggests a possible downside target. Overall, the technical indicators point towards continued bearishness in the near term.

Southern Company's MD&A reveals a mixed financial landscape. Consolidated net income attributable to Southern Company increased by $176 million, or 11.5%, to $1.7 billion in the third quarter of 2025, and $58 million (1.5%) year-to-date, reaching $3.93 billion. This growth was primarily fueled by increased retail electric revenues due to 'rates and pricing and sales growth'. Retail electric revenues increased by $341 million (6.4%) for the quarter and $1,272 million (9.2%) year-to-date. Wholesale electric revenues also saw significant increases, rising by $111 million (15.4%) for the quarter and $338 million (17.6%) year-to-date, driven by higher energy revenues. However, fuel and purchased power expenses also increased substantially, by $209 million and $679 million for the quarter and year-to-date, respectively. Southern Company Gas reported a decrease in net income for the third quarter, down $13 million (34.2%), to $25 million, while year-to-date net income decreased slightly by $6 million (1.1%) to $549 million. The MD&A mentions that 'the Registrants are unable to predict changes in law, regulations, regulatory guidance, legal interpretations, policy positions, and implementation actions that may result from the presidential administration', highlighting regulatory uncertainty. The company is also focused on 'developing and constructing new electric generating and battery energy storage facilities'. The company believes the need for working capital can be adequately met by utilizing operating cash flows, as well as commercial paper, lines of credit, and short-term bank notes, as market conditions permit.

Southern Company's Q2 2025 earnings call struck a moderately bullish tone, driven by strong adjusted earnings of $0.92 per share, $0.07 above estimates, and a positive outlook for growth in the Southeast. Management highlighted the region's economic strength, noting that 'the economy in the Southeast remains well positioned' with better-than-average unemployment rates and population growth. The company is increasing its 5-year base capital plan by $13 billion to $76 billion, reflecting investments tied to Georgia Power's 2025 Integrated Resource Plan (IRP) and repowering projects at Southern Power. Retail electricity sales were also up, with weather-normal sales 1.3% higher year-to-date and a 3% increase in Q2, driven by customer growth and increased usage, particularly in data centers (up 13%). While higher operating costs and milder weather impacted year-over-year comparisons, the company's focus on disciplined capital allocation and constructive regulatory processes supports a positive long-term outlook. Management also addressed the potential to 'reassess the base for our 5% to 7% long-term EPS growth rate as early as 2027,' signaling confidence in sustained growth.

SO's financial performance over the last several quarters reveals a somewhat positive trajectory, though with some areas of concern. Revenue increased from $6.045B in Q4 2023 to $7.823B in Q3 2025, indicating growth. Gross profit margin, however, has fluctuated, starting at 0.411 in Q4 2023, peaking at 0.543 in Q3 2024, and settling at 0.780 in Q3 2025, suggesting improved efficiency in the latest quarter. Operating cash flow has been consistently positive, with $3.774B generated in the most recent quarter (Q3 2025). The company's total debt has remained relatively stable, starting at $63.49B in Q4 2023 and increasing slightly to $66.205B in Q3 2025. Overall, SO demonstrates revenue growth, strong recent operating cash flow, and a relatively stable debt level. The fluctuating gross profit margin warrants continued monitoring to ensure sustained profitability.

The company demonstrates a moderately bullish profile, characterized by solid revenue growth and improving profitability. Revenue has consistently increased, indicating strong market demand. The gross margin exhibits stability, suggesting effective cost management. Return on Equity (ROE) has improved, showcasing efficient capital allocation. While the Price-to-Earnings (P/E) ratio is elevated, it is potentially justified by the company's growth prospects. The Debt-to-Equity ratio has decreased, reflecting a healthier balance sheet and reduced financial risk. The current ratio is at a healthy level, implying sufficient liquidity to meet short-term obligations. Overall, the company presents a favorable combination of growth, profitability, and balance sheet strength, supporting a positive outlook for the next 12 months, although the high P/E ratio warrants close monitoring.