Don't Judge Southern Company on Technicals Alone - Check Its Fundamentals!

Southern Company logged a 0.2% change during today's afternoon session, and is now trading at a price of $68.25 per share.

Southern Company returned losses of -11.0% last year, with its stock price reaching a high of $79.78 and a low of $60.71. Over the same period, the stock underperformed the S&P 500 index by -26.0%. As of April 2023, the company's 50-day average price was $69.56. The Southern Company, through its subsidiaries, engages in the generation, transmission, and distribution of electricity. Based in Atlanta, GA, the large-cap Utilities company has 27,423 full time employees. Southern Company has offered a 4.0% dividend yield over the last 12 months.

Exceptional Profitability Overshadowed by Excessive Leverage:

2018-02-21 2019-02-20 2020-02-20 2021-02-18 2022-02-17 2023-02-16
Revenue (MM) $23,031 $23,495 $21,419 $20,375 $23,113 $29,279
Gross Margins 68.0% 66.0% 71.0% 75.0% 70.0% 60.0%
Operating Margins 26% 22% 25% 25% 23% 20%
Net Margins 4.0% 10.0% 22.0% 15.0% 10.0% 12.0%
Net Income (MM) $880 $2,242 $4,754 $3,134 $2,408 $3,535
Net Interest Expense (MM) -$1,694 -$1,842 -$1,736 -$1,821 -$1,837 -$2,022
Depreciation & Amort. (MM) -$3,457 -$3,549 -$3,331 -$3,905 -$3,973 -$4,064
Earnings Per Share $0.84 $2.17 $4.5 $2.93 $2.24 $3.32
EPS Growth n/a 158.33% 107.37% -34.89% -23.55% 48.21%
Diluted Shares (MM) 1,008 1,025 1,054 1,065 1,068 1,062
Free Cash Flow (MM) $13,818 $14,946 $8,214 $13,169 $12,838 $13,950
Capital Expenditures (MM) -$7,423 -$8,001 -$2,433 -$6,473 -$6,669 -$7,648
Net Current Assets (MM) -$75,081 -$78,748 -$76,833 -$81,793 -$86,002 -$89,943
Long Term Debt (MM) $44,462 $40,736 $41,798 $45,073 $50,120 $50,656
Net Debt / EBITDA 5.19 5.21 5.18 5.32 5.66 5.67

Southern Company has strong margins with a stable trend, exceptional EPS growth, and wider gross margins than its peer group. However, the firm has a highly leveraged balance sheet. Finally, we note that Southern Company has weak revenue growth and a flat capital expenditure trend and irregular cash flows.

Southern Company's Valuation Is in Line With Its Sector Averages:

Southern Company has a trailing twelve month P/E ratio of 24.8, compared to an average of 22.89 for the Utilities sector. Based on its EPS guidance of $4.03, the company has a forward P/E ratio of 17.3. The company doesn't provide forward earnings guidance, and the compound average growth rate of its last 6 years of reported EPS is 22.3%. On this basis, Southern Company's PEG ratio is 1.11. Using instead the 10.4% weighted average of Southern Company's earnings CAGR and the broader market's anticipated 5-year EPS growth rate, the company's PEG ratio is 2.38, which suggests that its shares may be overpriced. Furthermore, Southern Company is likely overvalued compared to the book value of its equity, since its P/B ratio of 2.43 is higher than the sector average of 1.03. The company's shares are currently trading 38.5% above their Graham number.

There's an Analyst Consensus of Some Upside Potential for Southern Company:

The 16 analysts following Southern Company have set target prices ranging from $65.0 to $81.0 per share, for an average of $73.38 with a buy rating. As of April 2023, the company is trading -5.2% away from its average target price, indicating that there is an analyst consensus of some upside potential.

Southern Company has a very low short interest because 1.0% of the company's shares are sold short. Institutions own 65.7% of the company's shares, and the insider ownership rate stands at 0.16%, suggesting a small amount of insider investors. The largest shareholder is Vanguard Group Inc, whose 9% stake in the company is worth $6,772,304,647.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.