Southern Company: Buying the Rally before Q3 Earnings?

After a solid rally, Southern Company (SO) stock seems to have calmed down a bit recently. It has been trading in a narrow range for the last month. The top regulated utility stock SO has rallied more than 40% so far this year. In comparison, the Utilities Select Sector SPDR ETF (XLU), representing the biggest utility stocks in the country, is up about 22%. The S&P 500 (SPY) is up 20% year-to-date.

Southern Company: Buying the Rally before Q3 Earnings?

Plant Vogtle will be in focus

Southern Company will release its third-quarter earnings on October 30. Analysts expect the utility to report flattish earnings growth this quarter against its year-ago period. However, the focus will be on Southern Company’s Plant Vogtle updates.

The only under-construction nuclear power plant in the country, Vogtle has dented the utility with its multiple cost overruns and delays over the last few years. However, this year has been different so far. The project seems to be on track, which was one of the main reasons behind the SO stock rally.

However, a significant upside in Southern Company stock seems unlikely—even if Vogtle remains on track. SO is trading at a hefty premium compared to its historical average. Its forward PE (price-to-earnings) valuation comes in around 20x while the industry average valuation is around 19x.

Peer NextEra Energy (NEE) is trading 26 times its forward earnings while Duke Energy (DUK) is trading at 19 times. NextEra Energy’s Q3 earnings increased 10% year-over-year. NEE stock has also soared more than 35% year-to-date. Duke Energy is up 11% for the same period.

Southern Company kept its full-year adjusted EPS guidance of $2.98–$3.10 for the current year. This guidance suggests flattish earnings growth compared to 2018.

Southern Company dividends

Southern Company declared a quarterly dividend of $0.62 per share on October 21. The ex-dividend date for these dividends is November 15, and they will be paid on December 6. The company will pay a per-share dividend of $2.46 in 2019, which represents a yield of 4.1%.

Southern Company has raised dividends for the last 18 consecutive years. To learn more about Southern Company’s dividends, see Dividend Faceoff: Southern Company vs Duke Energy.

Southern Company stock looks well-placed based on its simple moving average levels. It’s trading 3% and 13% above its 50-day moving average and 200-day moving average. The fair premium to both its support levels underlines the strength in the stock. This level of around $60.20 might act as a support for the stock in the short term.

Southern Company stock’s price targets

Credit Suisse increased Southern Company’s price target from $56 to $60 on October 21. Meanwhile, Morgan Stanley cut its target from $59 to $58. Analysts’ mean price target of $59.56 indicates a downside of 4% for SO.

Renewables giant NextEra Energy offers a mean price target of $230 against its current market price of $236. UBS raised its target price from $250 to $257 while Wells Fargo increased it to $260 to $240.

Duke Energy stock offers a flattish upside, based on its current levels of $96.17. Wall Street analysts have given it a mean price target of $97.28. To find out what to expect from the utilities sector, check out Why Utilities Could Keep Smashing in the Fourth Quarter.