It hasn't been a great afternoon session for Southern investors, who have watched their shares sink by -1.2% to a price of $88.75. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Southern's Valuation Is in Line With Its Sector Averages:
The Southern Company, through its subsidiaries, engages in the generation, transmission, and distribution of electricity. The company belongs to the Utilities sector, which has an average price to earnings (P/E) ratio of 20.52 and an average price to book (P/B) ratio of 2.2. In contrast, Southern has a trailing 12 month P/E ratio of 22.2 and a P/B ratio of 2.93.
Southern has moved 34.5% over the last year compared to 17.5% for the S&P 500 — a difference of 17.0%. Southern has a 52 week high of $94.45 and a 52 week low of $65.99.
A Positive EPS Growth Rate at the Expense of a Highly Leveraged Balance Sheet:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $25,241 | $22,596 | $20,375 | $23,113 | $29,279 | $25,253 |
| Operating Margins | 17% | 34% | 24% | 16% | 18% | 23% |
| Net Margins | 9% | 21% | 15% | 10% | 12% | 15% |
| Net Income (M) | $2,300 | $4,744 | $3,103 | $2,309 | $3,428 | $3,849 |
| Net Interest Expense (M) | $1,842 | $1,736 | $1,821 | $1,837 | $2,022 | $2,446 |
| Depreciation & Amort. (M) | $3,549 | $3,331 | $3,905 | $3,973 | $4,064 | $4,986 |
| Diluted Shares (M) | 1,025 | 1,054 | 1,065 | 1,068 | 1,081 | 1,098 |
| Earnings Per Share | $2.17 | $4.5 | $2.93 | $2.24 | $3.26 | $3.62 |
| EPS Growth | n/a | 107.37% | -34.89% | -23.55% | 45.54% | 11.04% |
| Avg. Price | $36.52 | $47.37 | $51.47 | $58.3 | $67.33 | n/a |
| P/E Ratio | 16.75 | 10.46 | 17.45 | 25.8 | 20.53 | nan |
| Free Cash Flow (M) | -$1,056 | -$1,774 | -$826 | -$1,417 | -$1,621 | -$1,542 |
| CAPEX (M) | $8,001 | $7,555 | $7,522 | $7,586 | $7,923 | $9,095 |
| EV / EBITDA | 10.07 | 8.2 | 11.42 | 14.64 | 13.03 | nan |
| Total Debt (M) | $40,736 | $41,798 | $45,073 | $50,120 | $50,656 | $57,210 |
| Net Debt / EBITDA | 5.08 | 3.6 | 5.01 | 6.3 | 5.17 | 5.22 |
| Current Ratio | 0.67 | 0.78 | 0.71 | 0.82 | 0.66 | 0.77 |
Southern has negative cash flows, not enough current assets to cover current liabilities because its current ratio is 0.77, and a highly leveraged balance sheet. On the other hand, the company benefits from slight revenue growth and increasing reinvestment in the business and positive EPS growth. Furthermore, Southern has decent operating margins with a stable trend.
