Southern Company (SO) continued to rise and hit a new all-time high of $58.56 on August 9. So far, Southern Company stock has risen approximately 33%, while the Utilities ETF (XLU) has risen 15% this year.
Southern Company stock after Q2
We highlighted Southern Company’s bullish trend based on the technical “golden cross” pattern in Analyzing Southern Company’s Current Chart Indicators. Currently, the company is trading 4% and 14% above its 50-day and 200-day moving average levels, respectively. The large premium to both of the support levels indicates strength in the stock. Southern Company’s 50-day level around $55.8 might act as a support for the stock in the short term. The recent strength in the stock pushed it into the overbought zone, which might reverse the stock’s direction.
Southern Company stock beat its peers
Investors took shelter under top utilities amid increased broader market uncertainties. Utilities have stable dividends and steady stock price movements. Southern Company was one of the favorite stocks among utilities due to its superior dividend yield. Improved prospects for Plant Vogtle, the only nuclear power plant under construction in the country, reassured investors this year. Multiple cost overruns and project delays hampered Southern Company’s earnings in the last few years.
The Georgia Public Service Commission said that meeting the in-service dates of Vogtle reactors in November 2021 and 2022 will be a challenge, according to GreenTech Media. The public service commission also thinks that more delays will add to the project cost.
Southern Company offers a yield of 4.6%. The company has increased dividends for 18 consecutive years. In comparison, the Utilities ETF (XLU) is trading at a dividend yield of 3.1%. NextEra Energy (NEE) and Duke Energy (DUK) have risen 25% and 4%, respectively, this year. NextEra Energy yields 2.4%, while Duke Energy yields 4.2%. Together, Southern Company, NextEra Energy, and Duke Energy stocks form approximately 28% in XLU.
Southern Company stock is trading at 19x its earnings for the next 12 months. Broader utilities are also trading at 19x their forward earnings. Even if Southern Company looks fairly valued compared to peers, it appears overvalued compared to its historical average. The five-year historical average valuation is around 17x. NextEra Energy, the biggest utility by market capitalization, is trading at 24x its forward earnings, while Duke Energy is trading at 18x its forward earnings.
Target prices and analysts’ views
Analysts appear to be cautious on Southern Company stock. Among 19 analysts tracking Southern Company, 12 recommended a “hold,” two recommended a “buy,” four recommended a “sell,” and one recommended a “strong sell.”
Based on analysts’ estimates, Southern Company stock has a mean target price of $56.3, which indicates a downside of more than 3% for the next 12 months. The stock closed at $58.3 on August 9. J.P. Morgan raised its target price from $53.0 to $55.0 on August 5.
Southern Company’s dividend profile looks attractive compared to its peers. The top utilities will likely benefit from continued uncertainties due to geopolitical tension. However, the upside might be limited due to the premium valuation. To learn more, read These Utilities Have Increased Dividends for 45+ Years.