Is The Southern Company (SO) Worth Buying?

The Southern Company (NYSE:SO) operates in the United States with a power generating capacity of nearly 46,000 megawatts to 4.4 million customers. The company, with its subsidiaries, operates hydroelectric, natural gas, coal, and nuclear generation sources to generate electricity.

The company recently announced an increase in its annual dividend by $0.07 to $2.03 per share. This is the seventh consecutive year that Southern Company has raised its dividend. Shares of Southern have been on a rise since the beginning of the year.

The Southern Company (NYSE:SO) has both attractive valuation and solid profitability metrics over a period of time. Its financials have proved that the company aims to be the best investment in the energy sector. Its strategy for aggressive growth can be easily worked out by looking at its recent investments, financial performance, and the stock’s appreciation. Also, it has been able to perform better than its rivals in terms of revenue growth and operating margins, thereby proving it to be a buy for the long-term.

Unique stock

What makes this stock unique is that it has paid dividends to its shareholders for the past 262 consecutive quarters since 1948.

Strong financials

The Southern Company (NYSE:SO) has shown strong financial performance over the past year. In Q1 2013, operating revenue increased to $3.9 billion. Net income decreased 78% from $368 million in Q1 2012 to $81 million in Q1 2013.

Southern Company’s EPS decreased from $2.67 in 2012 to $ 2.35 in 2013. The company expects its EPS to be around $2.92 in 2014. Talking about the subsidiaries, Georgia Power is the largest subsidiary for Southern Company in terms of revenue. Georgia power had operating revenue of $7.998 billion in 2012.

Electric industry future outlook

Opportunity for capacity addition

The year 2013 brings an opportunity for the electric utility companies for capacity addition. The low interest rate and low electricity prices present offer an opportunity for the electric utility companies to invest in capacity addition. This will strengthen their infrastructure for the future demand.

The companies should strategically invest in projects which will strengthen their core competencies. The high capital expenditure involved in capacity addition should be considered as investment for the future.

Recent investments

Recently, Southern Power a subsidiary of The Southern Company (NYSE:SO), acquired the Granville Solar Facility. Southern Power has made this acquisition jointly with Turner Renewable Energy. The Granville Solar Facility is located in North Carolina. The solar facility has a capacity of 2.5 megawatts. This being Southern’s first acquisition of a solar plant marks its entry into solar power production. This acquisition is in line with Southern’s strategy to focus on renewable energy resources for the production of power.

Southern company’s stock analysis

The stock of The Southern Company (NYSE:SO) has gained about 14% since touching the low level of $42 in November 2012. The stock is currently trading at the price level of $46.95. The upward movement of the company’s stock is majorly attributed to the strong financial performance in the fourth quarter of 2012. Currently, the stock has the yield of 4.33%.

Comparison with competitors

Competitors of Southern Company are CenterPoint Energy, Inc. (NYSE:CNP), Entergy Corporation, and NextEra Energy, Inc. (NYSE:NEE).

When compared with its competitors, it can be seen that Southern Company has the highest operating margin in the industry. Southern’s operating margin of 26.99% is better than the operating margin of 15.75% for CenterPoint Energy, Inc. (NYSE:CNP) and close to 22.87% for NextEra Energy, Inc. (NYSE:NEE). The gross margin of 0.43 for Southern is the best in the industry. Southern Company is the largest company in the industry in terms of market capital, revenue, and work force employed.