Southern Company (NYSE:SO) reviewed the company's strategy and finances during a recent analyst day held for institutional investors. The company also reviewed its operations including updates on the construction of two large power plants in the United States.

TUTORIAL: Index Investing

Description of Southern
The core operations of Southern Company are its four regulated utility companies, including Alabama Power, Georgia Power, Gulf Power and Mississippi Power. These subsidiaries own approximately 42,000 megawatts of electric generating capacity and tens of thousands of miles of transmission networks in Alabama, Florida, Georgia, and Mississippi. These regulated utility operations will provide 95% of Southern Company's earnings in 2011.

Southern Company is also involved in some non-regulated businesses through other subsidiaries. The largest of these is Southern Power, which owns 7,700 megawatts of wholesale generation capacity in its service area and also in Texas and North Carolina.

Other Businesses
Southern LINC provides wireless service in a 127,000 square mile area corresponding to the service area of its utility operations. Southern Telecom owns a 1,200 mile wholesale fiber optic network in the Southeastern United States. This business sells capacity to telephone carriers and large enterprise customers.

Southern Company has two nuclear units at the Vogtle Electric Generating Plant in Georgia, and is currently constructing two additional reactors here. The two units will cost a total of $14 billion and add 2,200 megawatts of generation capacity when they come on line in 2016 and 2017. Shaw Group (Nasdaq:SHAW) is one of the companies involved in building the new units here.

Southern Company said that the project is on schedule, although the company held its analyst meeting prior to the recent problems at the Fukushima nuclear facility in Japan. If the U.S. government institutes more regulations on the construction of these facilities, there may be a risk of a delay in start up.

Southern Company is also building a generation plant in Mississippi. The Ratcliffe plant is an Integrated Gasification Combined Cycle plant that will generate 582 megawatts of power when it is complete in 2014. The facility will convert coal into a synthetic gas that will generate cleaner power and also include a carbon sequestration process. Southern Company said that this project is also on schedule.

Earnings Growth
Southern Company targets its earnings to grow between 5% and 7% annually over the long term. The company has issued guidance for 2011 earnings to be in a range of $2.48 to $2.56 per share, or approximately 8% growth over 2010. Southern Company also targets a return on equity between 12.4% and 13% on its regulated utility operations.

Dividend income is one reason that many investors own Southern Company, and the company pays out $1.82 per year, providing a yield close to 5%. Southern Company has paid a dividend for more than 63 years, and raised it for nine straight years. This yield is line with other utility companies of similar size. Dominion Resources (NYSE:D) and Duke Energy (NYSE:DUK) have yields of 4.5% and 5.5%, respectively.

Capital Expenditures
Southern Company estimates that its capital expenditures will range between $15.3 billion and $17.3 billion over the 2011 to 2013 time period, with the variance based on the level of spending required for the company to comply with various regulations and mandates by the government. These include environmental controls or transmission upgrades. Southern Company estimates that its free cash flow will not cover this capital spending and the company will issue a combination of debt and equity to fund the capital plan.

Bottom Line
Southern Company discussed its steady earnings growth and healthy dividend at a recent analyst meeting, and also provided operational details on the company, including an update on the status of two plants being built in the southeastern United States. (So you've finally decided to start investing. But what should you put in your portfolio? Find out here. Check out How To Pick A Stock.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Analyzing Dish Network's Return on Equity (ROE) (DISH, TWC)

    Analyze Dish Network's return on equity (ROE), understand why it has vacillated so greatly in recent years and learn what factors are influencing it.
  2. Investing Basics

    The Importance of Commodity Pricing in Understanding Inflation

    Commodity prices are believed to be a leading indicator of inflation, but does it always hold?
  3. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  4. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  5. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Stock Analysis

    The Biggest Risks of Investing in SandRidge Stock

    Learn about the significant risks of investing in SandRidge. Read how the company may not be able to service its substantial debt load.
  10. Stock Analysis

    The Top 5 Micro Cap Alternative Energy Stocks for 2016 (AMSC, SLTD)

    Follow a cautious approach when purchasing micro-cap stocks in the alternative energy sector. Learn about five alternative energy micro-caps worth considering.
  1. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  2. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  3. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  4. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  5. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
  6. What is the formula for calculating earnings per share (EPS)?

    Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, ... Read Full Answer >>
Trading Center