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.
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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.
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.
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.
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.
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.)
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