The latest earnings update The Southern Company (NYSE:SO) released in December 2018 indicated that the business benefited from a substantial tailwind, more than doubling its earnings from the prior year. Today I want to provide a brief commentary on how market analysts view Southern’s earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Market analysts’ prospects for this coming year seems buoyant, with earnings rising by a robust 42%. This growth seems to continue into the following year with rates arriving at double digit 46% compared to today’s earnings, and finally hitting US$3.4b by 2022.
Even though it’s informative understanding the rate of growth each year relative to today’s level, it may be more insightful evaluating the rate at which the business is rising or falling every year, on average. The pro of this method is that we can get a bigger picture of the direction of Southern’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 12%. This means, we can expect Southern will grow its earnings by 12% every year for the next few years.
For Southern, I’ve compiled three key aspects you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is SO worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SO is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of SO? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.