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. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!