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Southern Company Stock: Analyzing Its Current Valuation

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Jun. 20 2019, Updated 7:35 a.m. ET

Southern Company’s valuation

Southern Company (SO) stock looks attractive based on its current valuation. The stock is trading at 18x its forward earnings and close to its five-year historical average. In comparison, peer utility stocks are trading at ~19x their forward earnings. NextEra Energy (NEE) is trading at 23x its forward earnings, while Duke Energy (DUK) stock is trading at 18x its forward earnings.

Southern Company is one of the top-yielding utility stocks among its peers. Southern Company yields close to 5%, which is way higher than utilities’ average of 3.2%. During uncertain times, investors generally shift to safe havens like utilities due to their slow price movements and higher dividend yields.

However, utility stocks (XLU), including Southern Company, look expensive considering their slower earnings growth rate. Even though they offer a premium yield, the valuation multiple of 18x–19x looks high for their earnings growth of 4%–5% per year.

While utility stocks trade at their respective highs, NRG Energy (NRG) stock has been substantially weak. Read NRG Energy Stock: Is There More Weakness Brewing? to learn more.

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