SCANA, Southern Co. Bet on Nukes

Includes: SCG, SO
by: Dana Blankenhorn

If you believe in the future of nuclear power, if you're skeptical of the renewable space, you might want to take a flyer on SCANA Energy (NYSE:SCG) and Southern Co. (NYSE:SO). The two southeastern U.S. utilities are both committed to building new nuclear power facilities.

SCANA made its announcement in May, 2008, and defended it in its analyst day presentation last month, calling nuclear power the low-cost alternative. Southern Co.'s Georgia Power unit won approval for two new nuclear plants in 2009 and is already charging customers even though they won't be complete until 2016.

Both companies were buoyed by this week's news that the Nuclear Regulatory Commission report issued in the wake of the Fukushima disaster called such an outcome here “unlikely” and will not change the administration's pro-nuclear policy in any significant way.

Nuclear generation will allow Georgia Power to close three power plants, including two coal-fired plants that would have required expensive new scrubbers. At the same time, it has laid down the gauntlet to renewable alternatives, insisting that they meet the price of coal before major purchases will be made.

If you are looking for exposure to nuclear, SCANA may be the better bet, with a market cap of “only” about $5 billion, a current P/E of about 13.3, and a yield of almost 5% on a dividend of 49 cents. Southern Co. is much more diversified and is still heavily into coal, with a much bigger market cap, over $34 billion, and a P/E of nearly 18 along with a slightly lower yield of 4.67% on a 47 cent dividend.

Wunderlich recently raised its price target on SCG to $44, which would be near an all-time high, although the short-term trend is somewhat bearish. This should matter little to investors, because you don't buy these stocks for capital appreciation in any case, but for yield.

If you think nuclear power will protect your yield, here is your chance to put your money where your mouth is.

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

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