SO - Why Southern Company Will Beat Guidance

2024-07-09 15:58:23 ET

Summary

• Southern Company is well positioned to meet the increasing energy demand in the U.S. with a mix of power generation options and a guided growth rate of 5%-7%.
• The company's expertise in nuclear power, peaker plants, and solar production allows for low-cost incremental generation and continuous power supply, supporting a 9.5GW capacity pipeline.
• Southern Company's conservative load estimates, strong reputation, and high allowed ROEs suggest the potential for growth above the guided 5%-7%, making it an opportunistically priced investment with expected total returns in the low double digits.

It's becoming obvious that the U.S. is going to need to generate substantially more power than it is today. Southern Company ( SO ) is well positioned to answer the challenge.

The Buy Thesis

Southern Company is trading at a reasonably cheap valuation that does not account for its future growth rate. Specifically, I think the market is missing three key aspects:

1. Current mix of energy production facilitates cheap cost per MW on new builds
2. 9.5 GW capacity pipeline is well-supported by demand
3. Guided growth rate of 5%-7% is conservative

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