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Southern Company’s Latest Valuation, 3Q17 Earnings, and More

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Valuation

Southern Company (SO) stock is now trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 11.3x. Its five-year historical valuation average is near 11.0x, while the industry average is also close to 11.0x.

Consequently, the stock looks to be trading at a marginal premium compared to its historical average as well as to the industry (XLU) (IDU) average at the moment.

SO stk

Peer utility giants NextEra Energy (NEE) and Duke Energy (DUK) are trading at notable premiums to their respective historical average valuations and industry averages as well. On November 9, 2017, NextEra Energy had an EV-to-EBITDA multiple of ~13x, while Duke Energy is trading at a multiple of ~12.0x.

SO’s 3Q17 earnings

Southern Company (SO) stock has underperformed broader utilities by a big margin so far this year, having managed to gain 6% YTD (year-to-date), while the Utilities Select Sector SPDR ETF (XLU) has risen 14%.

SO beat the analysts’ earnings estimate for 3Q17, but its profit fell 13% YoY (year-over-year). Hurricane Irma and overall milder weather during the quarter resulted in lower electricity utilization and ultimately negatively impacted SO’s 3Q17 revenues.

Meanwhile, the Kemper County power plant kept hurting Southern Company in 3Q17. The utility reported $34 million in losses related to the plant, and its Vogtle nuclear project isn’t expected to be completed until November 2021.

SO’s power plant snags could continue denting its overall performance going forward. The completion of the Vogtle plant is expected to be a vital challenge, and operating it profitably will be another disputable issue.

However, SO’s earnings growth seems highly stable, and its management expects its earnings and dividend growth to stay insulated from these power plant hitches.

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