A Look At Southern Company (SO) Valuation After Q4 Results And Expanded US$81b Capital Plan

Southern (SO) is back in focus after its fourth quarter earnings, where revenue topped analyst forecasts even as net income softened, and a larger five year capital plan caught investors’ attention.

See our latest analysis for Southern.

The fourth quarter update and the expanded US$81b five year capital plan have come alongside a 30 day share price return of 8.87% and a 90 day share price return of 9.20%. At the same time, the 1 year total shareholder return of 10.53% and 5 year total shareholder return of 96.55% suggest longer term investors have already seen substantial gains as momentum has recently picked up.

If this earnings driven move has your attention, it can be useful to see what else utilities and infrastructure investors are watching, including 23 power grid technology and infrastructure stocks as a starting list of ideas.

With Southern trading close to analyst price targets but showing a large implied intrinsic discount, the key question is whether the recent rally leaves more room on the table or if the market is already pricing in future growth.

Most Popular Narrative: 90% Undervalued

Southern's most followed fair value narrative pegs the shares at about $98.13, just above the last close of $97.23, and builds a case around long run earnings power.

The successful operation and integration of the new Vogtle nuclear units, coupled with ongoing grid enhancements and the potential for further nuclear and renewable capacity, positions Southern to capitalize on surging demand for zero carbon electricity, enhancing long term earnings streams and regulatory rate base growth.

Read the complete narrative.

Want to see what kind of revenue path and margin profile are baked into that fair value? The narrative leans on steady growth, richer profitability, and a premium future earnings multiple. Curious how those assumptions stack up against the current price and capital plan? The full narrative lays out each step in that valuation story.

Result: Fair Value of $98.13 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, the expanded US$76b capital plan and planned equity issuance through 2029 could weigh on earnings per share if costs, regulation, or demand trends do not cooperate.

Find out about the key risks to this Southern narrative.

Another Angle on Valuation

So far, the focus has been on that $98.13 fair value built from long term earnings power. Yet on a simple P/E basis, Southern trades at 25.1x, richer than the US Electric Utilities average of 22.7x but below its 28.1x fair ratio and a 30.1x peer average. That mix of premium and apparent headroom raises a simple question: how much multiple risk are you really comfortable with here if sentiment cools?

See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

After considering the bullish fair value case and the richer P/E, the decision ultimately depends on how you assess the balance of risks and rewards. Take a closer look at the full breakdown of 2 key rewards and 2 important warning signs before you decide where you stand.

Looking for more investment ideas?

If Southern has sharpened your focus, do not stop here. Broaden your watchlist with other ideas that could match your goals and risk comfort.

• Spot potential value candidates early by checking out screener containing 24 high quality undiscovered gems that our filters surface for strong fundamentals and room to grow.
• Strengthen the core of your portfolio by reviewing solid balance sheet and fundamentals stocks screener (41 results) that pair financial resilience with quality metrics.
• Put your cash flow to work by scanning 13 dividend fortresses designed for investors who care about higher yields backed by durable businesses.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com