Southern Co (SO) — This Atlanta-based holding company is one of the largest producers of electricity in the United States.
Analysts at S&P Capital IQ Equity Research consider SO stock to be low risk based on the company’s history of steady cash flow from its electric utility operations and its strong balance sheet.
In late August, Southern announced the acquisition of natural gas utility AGL Resources Inc. (GAS) for about $8 billion. This will make it the country’s second-largest utility by doubling Southern’s customers to 9 million.
Capital IQ notes the acquisition is expected to boost EPS growth by 4% to 5%. Its analysts estimate earnings will increase 2.1% in 2015 to $2.86 per share and increase another 3.2% to $2.95 in 2016. They are also pleased with Southern’s $16.5 billion three-year capital spending plan, which includes environmental controls, transmission and distribution investments, two new nuclear units and an integrated coal gasification combined cycle power plant.
SO stock fell from a high over $53 in January 2015 to a low under $42 in June — a 22% decline in less than six months. It bottomed there and began forming a stable bull channel around the 50-day moving average. The channel has remained intact since July and shares are now approaching the resistance line near $47.50. Accumulation has been strong and MACD issued a buy signal.
I recommend buying SO stock on a pullback below its 50-day moving average at $45 with a trading target of $51. This would result in a gain of 13%, plus dividends. The company pays an annual dividend of $2.17 per share for a current yield of 4.6%.
As I heard one analyst note on CNBC, utility stocks may be one of the few ways to escape the bear’s bite. I agree, but only if bought at a reasonable price.
