Atlanta, Ga.’s Southern Company (SO - Get Rating) is a leading energy company that provides clean, safe, dependable, and affordable energy through three electric operating companies and four natural gas distribution companies. It has a competitive generation serving wholesale customers across America, a fiber optics network, and telecommunications services. 

The company reported a $215 million loss in its last reported quarter compared to $387 million in earnings in the fourth quarter of 2020.

The stock has slumped 5.6% in price over the past month to close yesterday’s trading session at $64.79. In addition, investment analysts at Wells Fargo & Company downgraded their stock rating to “equal weight” from “overweight” and reduced its price target to $72 from $73.

Here is what could shape SO’s performance in the near term:

Mixed Profitability

SO’s 45.9% trailing-12-months gross profit margin is 9.3% higher than the 42.1% industry average. Also, its $6.56 billion trailing-12-months cash from operations is 827.4% higher than the $707 million industry average.

However, SO’s 0.18% trailing-12-months asset turnover ratio is 17.1% lower than the 0.22% industry average. And its trailing-12-months ROA and ROC are 5.1% and 6.1% lower than their respective industry averages.

Stretched Valuations

In terms of forward Price/Book, the stock is currently trading at 2.31x, which is 23% higher than the 1.88x industry average. Also, its 5.74x trailing-12-months EV/Sales multiple is 33.4% higher than the 4.30x industry average. Furthermore, SO’s 3.13x forward Price/Sales is 30.4% higher than the 2.40x industry average.

POWR Ratings Reflect Uncertainty

SO has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SO has a D grade for Value, which is justified given the company’s higher than industry valuation.

Of the 59 stocks in the F-rated Utilities – Domestic industry SO is ranked #26.

Beyond what I have stated above, one can view SO ratings for Growth, Stability, Quality, Momentum, and Sentiment here.

Bottom Line

In the last reported quarter, Chairman, President, and CEO, Thomas A. Fanning said, “2021 was an excellent year, and we believe we are well-positioned to carry that momentum into 2022.” However, analysts expect its EPS to decline 7.1% in the current quarter (ending March 2022) and its revenue to decline 2.3% in fiscal 2022. In addition, considering the recent rating downgrade and declining earnings, we think investors should wait for its SO’s prospects to stabilize before investing in the stock.

How Does The Southern Company (SO) Stack Up Against its Peers?

While SO has an overall C rating, one might want to consider its industry peers, Otter Tail Corporation (OTTR - Get Rating) and Brookfield Infrastructure Corp. (BIPC - Get Rating), which have an overall B (Buy) rating.

SO shares rose $0.15 (+0.23%) in premarket trading Friday. Year-to-date, SO has declined -5.53%, versus a -7.98% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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