Southern Co Stock Buy Recommendation Reiterated (SO)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK (TheStreet) -- Southern (NYSE:SO) has been reiterated by TheStreet Ratings as a buy with a ratings score of A+ . The company's strengths can be seen in multiple areas, such as its expanding profit margins, growth in earnings per share, increase in net income, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

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Highlights from the ratings report include:

• 37.50% is the gross profit margin for SOUTHERN CO which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 15.30% is above that of the industry average.
• SOUTHERN CO's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SOUTHERN CO increased its bottom line by earning $2.55 versus $2.36 in the prior year. This year, the market expects an improvement in earnings ($2.65 versus $2.55).
• The net income growth from the same quarter one year ago has exceeded that of the Electric Utilities industry average, but is less than that of the S&P 500. The net income increased by 3.1% when compared to the same quarter one year prior, going from $620.00 million to $639.00 million.
• The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Electric Utilities industry and the overall market on the basis of return on equity, SOUTHERN CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
• The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

The Southern Company operates as an electric utility company. It is involved in the generation, transmission, and distribution of electricity through coal, nuclear, oil and gas, and hydro resources. The company has a P/E ratio of 18.6, below the average utilities industry P/E ratio of 18.9 and above the S&P 500 P/E ratio of 17.7. Southern has a market cap of $41.05 billion and is part of the utilities sector and utilities industry. Shares are up 0.7% year to date as of the close of trading on Thursday.

You can view the full Southern Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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