Tags: Southern | investment | price | SO

Southern: Solid Investment, Hefty Price Tag

By    |   Tuesday, 07 February 2012 09:41 AM

Electric utility firm Southern (SO) is a solid long-term investment with a hefty price tag. The stock climbed 21 percent last year as investors fled to high-yielding electric utilities. Long term, the power player offers growing earnings and dividends, though.

Southern, a holding company, serves customers mainly in Alabama, Georgia, Florida and Mississippi. The Atlanta firm has 4.4 million customers and is the second-largest electricity provider in the United States. Nearly 35 percent of Southern’s sales come from industrial customers, who are rebounding with the economy.

For the fourth quarter of 2011, Southern reported sales of $3.7 billion, down 2 percent from 2010. Net income for the quarter was 30 cents per share, up from 18 cents.

Full-year 2011 sales grew 1.2 percent to $17.6 billion; net income was $2.57 per share, versus $2.37 a year ago.

For 2012, the consensus earnings estimate is $2.67 per share. For 2013, the earnings estimate is $2.82.

Solid growth

Long-term, some analysts expect Southern’s earnings to grow between 4 percent and 7 percent. These earnings will drive steady dividend increases. Southern already yields 4.2 percent.

Given its high P/E ratio of 17, however, Southern is considered overvalued by many analysts. Of the 23 analysts followed by Thomson/First Call, three have strong buy recommendations and one has a buy, with 16 holds and three underperforms.

S&P analysts currently have a hold rating on Southern, but they praise Southern’s strong, predictable cash flow and solid balance sheet.

The company next reports on April 25.

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Tuesday, 07 February 2012 09:41 AM
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