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. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  2. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  3. Investing News

    Glencore Shares Surge in Hong Kong

    Shares of Glencore International, a leading multinational commodities and mining company, jumped by around 15% on London Stock Exchange, after the shares had gained about 71% earlier on the Hong ...
  4. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  5. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  6. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  7. Investing

    The Quinoa Quandary for Bolivian Farmers

    Growing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
  8. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  9. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  10. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  1. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  2. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

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!