On Friday, Wolfe Research adjusted its stance on Southern Co . (NYSE: NYSE:SO), moving the utility company's stock rating from Outperform to Peerperform. The change comes despite a positive assessment of the company's growth trajectory and financial health.
According to the firm, Southern Co. has surpassed management's expectations with its current data center-driven growth and is poised to present considerable investment opportunities as early as January in Georgia Power's next Integrated Resource Plan.
The analyst acknowledged Southern Co.'s strong long-term earnings per share (EPS) growth rate of 5-7% and noted that the company's rising load projections could enhance affordability.
Potential Department of Energy loans, if approved, along with a strengthening balance sheet, were also cited as positive factors. Southern Co. was recognized for its regulatory frameworks, which are considered to be among the most constructive in the industry.
Despite these strengths, Wolfe Research's decision to downgrade the stock was influenced by its current valuation. Southern Co. closed the day up, outperforming the Utility Sector Index (UTY) by 275 basis points after reporting its second-quarter results and has exceeded the index by 625 basis points year-to-date.
However, the stock's nearly 25% premium over the average utility price-to-earnings ratio for 2026 poses a challenge for further re-rating in the near term, leading to the adjustment in rating.
In other recent news, Southern Co. has been the subject of multiple developments. First, the company's CEO, Chris Womack, has projected an increase in the construction of large lightwater nuclear reactors across the United States, indicating a potential expansion in the nuclear power sector. This aligns with broader energy strategies and the country's goals for clean and reliable power sources.
On the financial front, Argus Research has increased its price target for Southern Co. to $90, up from $75, while maintaining a Buy rating. This decision comes after the successful operation of the company's two new Vogtle nuclear-generating plants. The lower operating costs associated with these plants are expected to contribute to Southern Co.'s financial performance.
Southern Co. has also undergone a leadership transition with Pete Sena III taking over as chairman and CEO of Southern Nuclear following the retirement of Stephen Kuczynski. Sena will lead the operation of over 8,400 MW of nuclear power across several plants in Alabama and Georgia.
In other developments, Southern Co. has announced a private placement offering of convertible senior notes valued at $1.1 billion, with a maturity date of June 15, 2027. The company plans to use the net proceeds to repay existing commercial paper borrowings and potentially for general corporate purposes.
Finally, BMO Capital Markets has adjusted its outlook on Southern Co., increasing the company's stock price target to $80 from $77, while reaffirming its Outperform rating.
This follows Southern Co.'s reported earnings per share of $1.03 for the first quarter of 2024, surpassing both the consensus estimate and the company's own guidance range.
InvestingPro Insights
For investors considering Wolfe Research's recent rating adjustment for Southern Co. (NYSE: SO), additional insights can be gleaned from InvestingPro metrics and tips. Southern Co. has demonstrated a consistent ability to reward shareholders, raising its dividend for an impressive 22 consecutive years, which underscores a stable financial policy and commitment to returning value to investors. This is further supported by the fact that the company has maintained dividend payments for 54 consecutive years.
On the performance front, the stock has shown a strong return over the last month, with a 12.92% total return, and this trend extends over the last three months, with a 17.31% total return. Such robust performance might indicate investor confidence and a positive market reaction to the company's growth and operational strategies. Furthermore, the company's stock is trading at a low P/E ratio relative to near-term earnings growth, which might appeal to value-oriented investors looking for growth at a reasonable price.
However, it's important to note that three analysts have revised their earnings downwards for the upcoming period, which could suggest that there are concerns about the company's future earnings potential. Additionally, the stock is trading near its 52-week high and the Relative Strength Index (RSI) suggests that the stock is currently in overbought territory, which could indicate a potential pullback or consolidation in the near term.
Investors interested in a deeper analysis can find more InvestingPro Tips for Southern Co. at https://www.investing.com/pro/SO, which may provide further guidance on whether Southern Co.'s current market position aligns with their investment strategy.
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