Edward Jones Analyst Andy Pusateri has a “sell” rating on Southern Co (SO). He says the stock’s valuation is high, and that the company has more risk relative to the traditional growth trajectory of most regulated utilities because of two new builds the company has underway.
“One is a clean coal plant in Mississippi that’s nearing completion, and they have had a lot of issues with cost overruns as well as time delays in constructing that plant,” Pusateri says. “They are to the point there where they have kind of hurt some regulatory relationships in Mississippi, and also the customers are done paying for any cost over, so the shareholders are going to have to eat any additional problems.”
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Pusateri says the other risk factor for Southern is its nuclear construction. He says that because we haven’t had any new nuclear builds in the U.S. in over 30 years, there is an assumption that there might be delays or cost overruns.
“In my opinion when you have that risk outstanding there is less certainty, and so investors in my mind are willing to pay higher multiples for certainty as it relates to earnings growth and pay less for companies with uncertainty, and I think Southern just has that uncertainty right now, and therefore we think shares deserve to trade at discounted multiple,” Pusateri says.
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