Southern Company (SO) recently fell to and below its 200-day SMA. To some this might seem a sign of weakness. However, it is more likely just the normal cycling of a good stock. Southern Company has been in a strong uptrend for more than two years. During that span, it has only touched its 200-day SMA two other times, and has been firmly above its 200-day SMA the rest of that time. This strength seems to be continuing. SO beat on earnings slightly at $0.69 for Q2 2012 versus an expected $0.68. Revenues were down 7.5% year over year, but that was likely due to mild weather in Q2 (less cooling needed) and possibly an effect of the current economically troubling times. Since most of the US experienced a heat wave this summer, including most of SO's service areas, Q3 revenue results seem likely to improve significantly. Plus, SO did add 20,000 new residential customers in the first six months of 2012. This is the number of new customers SO originally projected it would add for the entire year. This is a positive sign. The two-year chart of SO is below.
SO is a utility with a long history of great performance and innovation. It has more than 4.4 million customers, and it provides more than 43 gigawatts of generating capacity to both retail and wholesale commercial customers. It has significant plans to add to this in order to continue to meet its customers' demand. It currently has a $1.96 (4.25%) annual dividend. Its recent 3.7% dividend raise in April 2012 was SO's 11th straight year of dividend raises. It hasn't missed a dividend quarterly payment in more than 64 years. It's record of shareholder return is one of the best with a 5-year average total return of 9.9%, a 10-year average total return of 11.4%, and a 30-year average total return of 16.3%. Even though the return has slowed in recent years, it is still an enviable one, and the US has had the "Great Recession" during that time. SO far outperforms the S&P 500, and the S&P 500 is outperforming most fund managers this year according to CNBC. Most retirement accounts would benefit from this great stock.
The world economy is slowing. There is the EU credit crisis. China may be in for a hard landing. The US may be the best neighborhood to invest in; and SO may be the among best of the best houses in that neighborhood. SO's customers will need power for heating, cooling, lighting, etc. regardless of the US economic condition. They may cut back a small amount; but you still need heat in the winter, etc. Any losses in stock price SO may or may not experience will be regained quickly once the economy picks back up. SO will not lose customers. This situation represents relative safety.
The long term chart of SO (see below) shows just how steady SO's stock price gain has been over the long haul.
The strength of the long term uptrend in the stock price speaks for itself. The steepness of the graph in recent years tends to make one think SO is in for a retracement soon. However, if you draw a rise line from 1990 to present, the current price is not very far above that long term average rise line. SO still looks like a great investment. Its recent upswing from its 200-day SMA means it can be bought in the short term. Averaging in may be a good strategy.
Other fiscal fundamentals support the above picture. SO trades at a P/E of 18.61 and an FPE of 16.35. SO historically (over the last five years) has traded in a P/E range of 12 to 19. This means it is at the high end of its historical range, but it is not overpriced, especially when you consider the FPE of 16.35. Safety is at a premium in these troubled times. SO has shown steady GAAP income growth over the last three years from $1.708B in 2009 to $2.040B in 2010 to $2.268B in 2011. This is the good steady growth you expect from a top utility. SO has an average analysts' next five years EPS growth rate of 5.38%. This is modest, but it is good, steady growth that is typical of a top utility. Further the FY2012 and FY2013 average analysts' EPS estimates are essentially unchanged over the last three months. Many other companies' EPS estimates have decreased during that time. This is again strong, steady performance for SO.
SO has been leading in environmental cleanliness too. The chart below shows SO's large percentage move from coal to cleaner burning natural gas in the last year.
The above is a continuation of SO's steady move from 16% natural gas and 70% coal in 2007. SO has been listening to environmentalists since long before the dramatic natural gas price decline of the last year or so. Further, SO was awarded the 85th annual EEI Edison Award for the Plant Vogtle nuclear expansion (low greenhouse gases). Fortune Magazine named SO one of the "World's most admired" electric and gas utilities and number 1 in financial soundness three years in a row. In 2011 SO won the Platts Global Energy Award for "Power Company Of The Year". On the negative side, there are some who think that the number 3 and 4 units of the Vogtle plant will be far over budget. SO has recently revealed that its $6.1B construction budget for its first reactor will increase by $87 million; and not many would be surprised to see it increase still further. SO plans to ask the Georgia Public Service Commission for a formal budget increase.
SO is also a leader in carbon capture (carbon dioxide capture) with its project at Plant Barry in South Alabama. It is building the TRIG plant with carbon capture technology in Mississippi. SO is adopting renewable energy technologies. SO is building one of the nation's largest wood biomass plants in Texas. It has recently partnered with Turner Renewable Energy to takeover the Apex Solar Project from SunEdison. It is operating a 30 megawatt solar plant in New Mexico. It is gathering data on wind power generation in Alabama, Florida, and Georgia. It is offering green energy options to customers. It has 34 hydro facilities in Alabama and Georgia. It has nuclear startups planned for 2016 and 2017. It is also spending heavily on Smart Grid technologies. This is not a company that is going to fall behind environmentally or technically. This makes it just that much safer a place to put your money.
If you are interested in other strong utilities with excellent total return records, you might also consider: Consolidated Edison (ED) Northwestern Corp (NWE), and Wisconsin Energy Corp. (WEC). The charts below speak for themselves.
ED long-term chart:
WEC long-term chart:
NWE long-term chart:
NWE is a much younger company than either of the other two, but it promises the same great long-term growth story.
NOTE: Some of the fundamental fiscal data above is from Yahoo Finance.
Good Luck Trading.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SO over the next 72 hours.