We are initiating coverage on The Southern Company (SO) with a Neutral recommendation and a target price of $35.

Headquartered in Atlanta, Georgia, Southern Company is one of the largest generators of electricity in the nation, serving both regulated and competitive markets across the southeastern U.S. It is a holding company for four regulated Southern electric utilities that serve about 4.4 million customers – Georgia Power, Alabama Power, Gulf Power, and Mississippi Power. The company participates in all phases of the electric utility business with more than 42,000 megawatts (MW) of electric generating capacity, and an extensive grid of transmission and distribution lines. The company also engages in the construction, acquisition, and management of generation assets, provision of digital wireless communications services, and the provision of fiber optic solutions to telecommunication providers.

The Southern Company is the premier energy company serving the Southeast U.S. It remains a leader in power plant productivity, cost control (operating and construction), and research of new technology. Southern Company is a quality utility that provides the security of regularly expanding dividend payments as well as the potential for moderate-to-high capital appreciation.

However, with almost 30% of the company’s total retail sales coming from industrial customers, a sluggish economy severely affects the fortunes of Southern, compared to other utilities that are less dependent on industry. This will continue to hamper the company’s results during the next few quarters, as industrial sales still remain weak.

As such, we do not anticipate a significant upside in the near future and expect the stock to perform in line with the broader market.

Zacks Investment Research

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