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This Utility Company Is a Sound Investment

August 02, 2014 | About:
rusticnomad

rusticnomad

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Southern Company (SO), an American electric utility holding company, is on a roll. The company impressed investors with its fantastic quarterly results. Southern performed well with its quarterly revenue growing 19% to $4.64 billion from $3.9 billion last year, topping Wall Street's estimates of $3.84 billion. EPS came in at $0.66 per share, and outpaced analysts' estimates, who were modeling EPS to be $0.56 per share.

Southern benefited from the cold weather while continued economic growth is also another tailwind. Southern Company is focusing on operational efficiencies. Despite the cold weather and challenging situations, the company managed to provide clean, safe, reliable and affordable energy to customers.

The right strategies

Southern Company was able to supply energy to about 800,000 customers affected by harsh weather conditions. The company, on the other hand, also succeeded in satisfying weather-related demands. With natural gas price being volatile, Southern Company delivered more than $100 million in fuel cost savings by taking advantage of its fuel optionality.

The company is seeing economic growth and is expecting this to continue in the future as well. Nine of its 10 largest industrial sectors accounted for approximately 80% of industrial sales. Southern Company is also counting on its investments for long-term benefits. The construction of its units in Vogtle, Georgia, and Kemper are expected to start delivering returns by 2017 and 2018.

Moving on, the grant of loan guarantee for construction is an excellent move in favor of Southern Company. The DOE loan will provide a committed source of funds that will reduce financial risk, while delivering an estimated $250 million and present value benefit to Georgia Power customers. These savings should translate to lower base rates for customers over the life of the loan.

The Kemper Project might prove to be a growth driver for the company in the future. With Kemper, Southern Company is winding down construction and ramping up start-up activity. The new gasifier is expected to be complete in mid to late summer. The company expects that this will undoubtedly benefit customers in the peak summer season. However, having seen labor inefficiencies and a slowdown in construction in the past, the company expects to face some weakness in the short term.

Technology investments

Southern Company is looking to deliver more value through its TRIG technology. With this, the company is looking to deliver on its commitment to provide safety and quality. To ensure all these, Southern will be focusing on the construction of its first of a kind plant. It is working on instrumentation and controls integration, which is critical for the technology's success.

Conclusion

Further, under the shareholder-centric strategy, the company has decided to increase the dividend by 3.5% to $2.10 per share.

Despite challenges that the company is facing at the Kemper Project, Southern Company is confident of delivering better results in the future and is committed to providing clean, safe, reliable and affordable energy to customers. The company trades at a trailing P/E of 20.01, which looks cheap considering the dividend. So, the company might prove to be an excellent investment with an impressive dividend offering. So, investors seeking long-term gains can go for Southern Company.


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