Southern Company - A Solid, Conservative Stock

Jun. 1.12 | About: Southern Company (SO)

In unstable markets there is always a flight to safety, and what could be safer than The Southern Company (NYSE:SO), an electric utility based in the solidly growing Southeast? The Southeast has a very friendly regulatory environment when it comes to price hike requests, and the regulators give a fair and balanced review to Southern Company's rate requests in Georgia, Mississippi, Alabama and Florida.

In the past month the stock's price has made a nice recovery, as this hourly trading chart, provided by Barchart, shows:

Click to enlarge.

As the general market as measured by the Value Line Index has been in decline by about 12% over the last 50 trading sessions, SO has made solid gains and is up about 4.5%:

The Southern Company operates as an electric utility company. It is involved in the generation, transmission, and distribution of electricity through coal, nuclear, oil and gas, and hydro resources. The company also constructs, acquires, owns, and manages generation assets, including renewable energy projects. As of December 31, 2011, it owned and/or operated 33 hydroelectric generating stations, 34 fossil fuel generating stations, 3 nuclear generating stations, and 13 combined cycle/cogeneration stations, as well as 2 solar facilities and 1 landfill gas facility; and had a total generating capacity of approximately 12,222 megawatts.

In addition, the company offers various wireless communication options, such as talk, cellular service, text messaging, wireless Internet access, and wireless data services; and wholesale fiber optic solutions to telecommunication providers under the Southern Telecom name. It serves retail and wholesale customers in the southeast United States. The company was founded in 1945 and is headquartered in Atlanta, Georgia. (Yahoo Finance profile).

Factors to consider:

Barchart technical indicators:

  • 100% Barchart technical buy signal
  • Trend Spotter buy signal
  • Above its 20, 50 and 100 day moving averages
  • 13 new highs and up 3.74% in the last quarter
  • Relative Strength Index 61.46%
  • Barchart computes a technical support level at 45.48
  • Recently traded at 46.00 with a 50 day moving average of 45.32

Fundamental factors:

  • A very popular Wall Street conservative income stock were 16 brokerage firms have assigned 22 analysts to run the numbers
  • Sales are projected to increase by 4.20% this year and another 4.50% next year
  • Earnings are estimated to increase by 3.10% this year, 6.00% next year and continue to increase by an annual rate of 5.58% for the next 5 years
  • These consensus numbers resulted in analysts issuing 4 strong buy, 2 buy, 12 hold, and 4 under perform recommendation on this issue
  • Since the stock has a 100 earnings predictability rating and a 100 price stability rating; those numbers look pretty dependability
  • You don't get rich investing in utilities but you don't go broke either so investors should see a solid 5% - 7% total annual return over the next 5 years
  • The P/E ratio of 18.34 is higher than the market ratio of 14.1
  • The 4.27% dividend rate is about 75% of estimated earnings and much higher than the market's dividend rate of 2.40%
  • The company enjoys an A financial strength rating
  • There are several rate requests pending that are expected to be approved and some rate requests are formula based so increases are granted automatically
  • Several new generation plants including 2 nuclear are under construction and should be more than enough to meet the increased demand the population growth in the SE requires

Investor interest:

  • The individual investor as represented by the readers of Motley Fool have given 1,083 opinions on the stock
  • 95% voted for the stock to beat the market
  • 98% of the more experienced All Stars voted for the same result
  • Although Zacks and Goldman Sachs have under perform ratings, Deutsche Securities and RBC Capital Markets as well as Jim Cramer like the stock

The stock appears solid when compared to the competition. Over the past year SO is up 15% as well as Duke Energy (NYSE:DUK) up 19%, Excelon (NYSE:EXC) was down 12% and Dominion Resources (NYSE:D) was up only 8%:

Summary: The Southern Company is one of those buy and hold stocks that might be a good addition for your IRA. Solid revenue and earnings growth projections plus a good dividend that can be put on a dividend reinvestment program make this a good core holding for conservative portfolios. As always buy and hold does not mean buy and ignore. Watch the 100 day moving averages and lower 14 day turtle channel for market weakness:

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.