Southern Company: Strengths, Weaknesses, Opportunities, Threats
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. Fresh of breaking through the 200 moving day average to the downside for the first time since August 2011, I would like to pinpoint on one of the largest utility companies in the world, The Southern Company (NYSE: SO).
- Stability and Predictability: Utilities are known as being stable and safe investments, and Southern is no exception to this, as through it holdings the company provides electricity to millions of customers everyday
- Provides a Near-Necessity: The company provides a product as essential as toilet paper and toothpaste in the modern world, as electricity is one of the last things to go when there is shortage of money
- Consistent Top-Line Growth: The company has steady been growing revenues over the past years, with a growth rate in the low single digits (1.2% from 2010 to 2011), and this trend should continue into the future
- Dividend: The company has a long proven track record of paying out dividends, and currently pays out quarterly installments of $0.49, which annualized puts the dividend as yielding 4.44%
- Large Area of Operation: The company is relatively diversified in its regions of operation, as its holdings stretch across most of the southern United States, with operations in Alabama, Georgia, Florida, and Mississippi
- Potential Fines: While this issue has been more concentrated in northern states, utility companies face hefty fines if they lag in their efforts to restore power to their customers after a storm
- Large Price to Earnings Ratio: The company carries a price to earnings ratio of 17.35, representing a slight overvaluation based on the company’s slower paced growth and relative stability
- Sale Growth Stagnation: The total kilowatt-hour sales the company produced from 2010 to 2011 declined 3.4%, and is predicted to further fall into the future displaying a company that is contracting in its most important statistic
- Hunt for Accelerated Growth : If the company was to pursue faster-paced growth they would have to use their massive size to acquire a smaller company, which takes many years to complete
- Acquisitions: In July, Southern acquired a 20 megawatt solar photovoltaic power plant in Nevada, and other acquisitions are possible
- Fueling Tomorrow’s World: The company is heavily investing in the power sources of tomorrow, as the company has drastically drawn back coal usage over the past decade, and is researching into integrating solar and other clean energy sources into their ecosystem
- Dividend Growth: The company has consistently raised its dividends since integrating the program (8.1% raise from 2010 to 2011) and there is a probability that this streak will persist well into the future
- Mother Nature: The most prominent threat to the company’s success is any natural disasters that hit the regions in which they operate in, as a widespread shutdown causes a considerable loss in potential revenue
- Regulation: Government regulation regarding which sources of energy the company can utilize and how much of a certain source they can use could prove detrimental to the company’s profits as it costs much more to derive energy from solar energy then energy from fossil fuels
- Lack of Direct Competitors: The company faces no direct competitors as the in the regions they operate in they are usually the only provider of energy available because of infrastructure capabilities
The company faces no direct competitors in its operations, however there are some major publically-traded companies that operate in the same industry as Southern, including Duke Energy (NYSE: DUK) and NextEra Energy (NYSE: NEE). Duke is a slightly larger company than Southern with the company’s main operations located in the southeastern and midwestern regions of the country. The company’s dividend is also colossal; however the company possesses a larger price to earnings multiple. NextEra possesses operations stretching through 24 states and 3 Canadian provinces, however is smaller in terms of value than the other two companies. NextEra’s dividend is also extremely substantial, however the company carries a more reasonable price to earnings multiple.
The Foolish Bottom Line:
The Southern Company possesses several strengths, weaknesses, opportunities, and threats; however in the end appears to be a financially strong company with a steady and predictable future. If the past is a good indicator of the future, than the Southern Company is primed for another 100 years of service, growth, and shareholder value. At current prices the company appears extremely attractive to any long-term investor in search for a major dividend player.
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