On Tuesday, Mizuho Securities adjusted its outlook on Southern Co . (NYSE: NYSE:SO) shares, increasing the utility company's price target to $76 from $73 and affirming a Buy rating.
The firm highlighted Southern Co.'s potential for long-term earnings growth of 5-7%, propelled by a consistent rate base growth of approximately 6% per year and an anticipated increase in electric sales.
Southern Co. is expected to experience a 1-2% growth in electric sales through 2025, which is projected to surge to around 6% from 2025 to 2028. Georgia Power, a subsidiary of Southern Co., is forecasted to see even stronger sales growth at approximately 9% during the same period.
The firm noted that Southern Co. faces minimal regulatory risk in comparison to its peers this year. A critical decision from the Georgia Public Service Commission (GPSC) regarding Southern Co.'s 2023 Integrated Resource Plan (IRP) Update is expected by April 16, 2024.
Despite Southern Co.'s shares trading at a 12% price-to-earnings (P/E) premium relative to its industry group, Mizuho believes the stock could experience a re-rating to the mid-teens. The firm suggests that investors may gravitate towards Southern Co. for its stability, quality, and lack of exposure to wildfire risk.
InvestingPro Insights
InvestingPro data provides a snapshot of Southern Co.'s financial health and market performance. With a market capitalization of $77.57 billion and a P/E ratio standing at 19.52, the company is a significant player in the utility sector. Despite a decrease in revenue by 13.75% over the last twelve months as of Q4 2023, Southern Co. has maintained a substantial gross profit margin at 46.36%. This indicates the company's ability to manage costs effectively relative to its revenues.
InvestingPro Tips highlight Southern Co.'s commitment to shareholders, as evidenced by its impressive track record of raising dividends for 54 consecutive years. This consistency in returning value to investors is further underscored by the current dividend yield of 3.94%. Additionally, analysts predict the company will remain profitable this year, which, combined with its low price volatility, could make it an attractive option for investors seeking stability.
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