Valuation

Top-regulated utility Southern Company (SO) stock is currently trading at a forward PE ratio of 14x based on the estimated EPS for the next year. Southern Company’s forward PE ratio is lower than its peers’ average forward PE ratio and Southern Company’s five-year historical average PE ratio. Southern Company appears to be trading at a discount compared to its historical valuation and its peers. However, the company looks expensive considering the estimated EPS growth of 1% for 2019.

Southern Company’s Valuation Compared to Its Peers

Peers’ valuations

PPL (PPL) is trading at a forward PE ratio of 12.7x—lower than its peers. PPL’s five-year historical average PE ratio is close to 14x. PPL appears to be trading at a discounted valuation compared to its peers and its historical valuation. Analysts expect PPL’s EPS to grow ~4% for the next few years.

NextEra Energy (NEE), the biggest utility in the Utilities ETF (XLU), is trading at a forward PE multiple of 21x based on its forecasted EPS in 2019. NextEra Energy’s forward PE multiple is higher than its five-year historical average PE multiple of close to 20x.

The above chart shows the comparative stock price movement of Southern Company along with utilities at large and broader markets. Southern Company stock has lost 5%, while broader utilities have risen 4% in 2018.

Southern Company declared a quarterly dividend of $0.60 per share last week. Southern Company’s ex-dividend date is November 16. The dividend will be paid on December 6. Southern Company offers a dividend yield of 5.5%—the highest among the S&P 500 Utilities.

Correction: An earlier version of this article suggested that Southern Company’s forward PE ratio was higher than its peers’ average forward PE ratio and its own five-year historical average PE ratio. The ratio was, in fact, lower than both.

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