What Does Southern Company’s Current Valuation Indicate?
Southern Company (SO) stock is among the very few utility stocks that are trading at a relatively fair valuation. On September 28, 2017, Southern Company was trading at an EV-to-EBITDA valuation multiple of 11.2x. Its five-year historical EV-to-EBITDA ratio stands at 11.0x, while utilities are trading at a valuation ratio of 11.0x.
Southern Company stock seems to be trading at a fair valuation compared to the industry average and its historical valuation.
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In comparison, Duke Energy (DUK) stock is trading beyond 12x, while NextEra Energy (NEE), the largest utility holding company in the industry, is trading at a valuation ratio of 13x. Both of these utility giants are trading at a premium to their respective average historical valuation multiples.
The significant fall in Southern Company stock might be the main reason behind its relatively cheaper valuation. Its power plant snags hampered its stock in the last few years. Compared to utility giants, Southern Company’s valuation might attract investors going forward.
Southern Company holds the top spot in terms of dividend yield among the S&P 500 Utilities Index (XLU). Currently, it’s trading at a yield of 4.8%—way higher than utilities’ average of 3.5%. Southern Company’s dividend profile is impressive, but the premium yield might be due to the stock’s fall in the last few months.
In comparison, Duke Energy trading at a dividend yield of 4.1%, while NextEra Energy yields ~2.6%. To learn more, read The Top Utilities by Dividend: NEE, DUK, SO, and D.