In this part of our series, let’s see how Southern Company (SO) is valued as its trades close to its yearly peak. Southern Company stock is trading at a forward PE ratio of 16x, based on analysts’ earnings estimates for the next 12 months. Utilities at large are trading at an average forward multiple of ~18x. The stock seems to be trading at a discounted valuation compared to its historical average of 20x and peers’ average. However, Southern Company stock’s valuation seems unwarranted, given its lower earnings growth for the next few years.
The chart above compares stock price movements for Southern Company with utilities (XLU) at large and the broader markets. Southern Company stock rose almost 15% so far this year while utilities, on average, gained 7%.
Southern Company’s peer Duke Energy (DUK) is trading at a forward PE ratio of 18x, based on earnings estimates. Its five-year average valuation is close to ~20x. Duke Energy appears to be trading at a discounted valuation compared to its historical average.
NextEra Energy (NEE), the biggest utility by market cap, is trading at a forward PE ratio of 22x, based on analysts’ earnings estimates for the next 12 months. The company’s five-year historical average valuation is ~20x while utilities at large are trading at a forward PE ratio of ~18x. NextEra Energy stock looks to be trading at a large premium compared to its historical valuation and peers.