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. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  2. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  3. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  4. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  5. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  6. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  7. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  8. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  9. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  10. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  4. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  5. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  6. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>

You May Also Like

Trading Center