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Southern Company Stock Surges after Its 2Q17 Earnings

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Market performance

Southern Company (SO) stock surged 2.6% after reporting its 2Q17 earnings on August 2, 2017. This was the highest single-day gain for SO this year. The Utilities Select Sector SPDR ETF (XLU) rose 0.4% for the day.

Southern Company stock has been lagging behind its peers lately due to worries over its power plant issues. In the last 12 months, SO lost 7% while utilities at large rose 4%. The SPDR S&P 500 Index (SPX-INDEX) surged nearly 15% in the same period.

SO stk

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Valuation

Southern Company’s EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] valuation ratio currently stands at 11.6x. Its five-year historic average is near 11.0x while the utilities’ average is ~10.0x.

So, Southern Company appears to be more expensive than its historic and the industry average.

Its peer NextEra Energy’s (NEE) EV-to-EBITDA multiple is near 13.0x, while Dominion Energy’s (D) EV-to-EBITDA multiple is 14.5x. Duke Energy’s (DUK) multiple is ~12.0x.

Southern Company is currently trading at a price-to-earnings (or PE) multiple of 18.5x while Duke Energy and Dominion have PE multiples beyond 21.0x. Southern Company stock appears to be trading at a discount based on PE valuation.

Investors seem to be unconcerned regarding US utilities’ current overvaluations. US utilities have been trading on the expensive side for quite a while, and momentary corrections in these stocks recently resulted in some healthy buying action.

Dividends

At 4.8%, Southern Company is currently the highest-yielding utility among the top utilities in the sector. The Utilities Select Sector SPDR ETF (XLU) is currently offering a dividend yield of 3.5%. Southern Company’s stable dividend growth and long dividend payment history are positive attributes for the utility.

You can compare dividend profiles of Southern Company and Duke Energy in Utility Titans: Analyzing SO and DUK’s Dividend Profiles.

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