{"id":45303,"date":"2023-08-07T05:01:40","date_gmt":"2023-08-07T09:01:40","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/southern-company-a-top-tier-utility-yielding-4-trading-16-below-its-highs-nyseso\/"},"modified":"2023-08-07T05:01:42","modified_gmt":"2023-08-07T09:01:42","slug":"southern-company-a-top-tier-utility-yielding-4-trading-16-below-its-highs-nyseso","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=45303","title":{"rendered":"Southern Company: A Top-Tier Utility Yielding 4%, Trading 16% Below Its Highs (NYSE:SO)"},"content":{"rendered":"
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Introduction<\/h2>\n

Georgia-based Southern Company (NYSE:SO<\/span>)<\/strong> is a utility I’ve always liked as a high-yield play. However, in the past two years, I started to put it on top of my list, as I believe it’s one of the best utility companies money can buy.<\/span><\/p>\n

The company just achieved a major milestone, as Vogtle Unit 3 has gone online, making the company a pioneer in America’s (very slow) return to nuclear energy.<\/p>\n

Given tremendous progress at Vogtle Unit 3, the company will soon be in a great spot with tailwinds from rising income and rapidly falling capital expenditures.<\/p>\n

When adding the 4% yield and the decline in its stock price, leading to better valuations, I believe that income-oriented investors may benefit from taking a closer look at this regulated utility giant from the Peach State.<\/p>\n

A Major Milestone<\/h2>\n

On August 1, the Energy Information Administration wrote a <\/span>report on a major new milestone: the first new US nuclear reactor since 2016 is now in operation.<\/span><\/p>\n

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Energy Information Administration<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Vogtle 3 boasts a capacity of 1,114 megawatts (MW), which is further enhancing the existing power generation capabilities of Plant Vogtle.<\/p>\n

This facility, jointly owned by Georgia Power and three other utility companies, already houses two reactors with a combined capacity of 2,430 MW, which were brought online in the late 1980s.<\/p>\n

As much as I like nuclear energy as a way to provide affordable and reliable energy, there are reasons why almost no new capacity was brought online since the early 1990s: costs and associated risks.<\/p>\n

Construction of Vogtle 3 & 4 began in 2009, originally projected to cost $14 billion, and commence operations by 2016 and 2017.<\/p>\n

However, the project faced significant delays and cost overruns, resulting in a revised estimated cost exceeding $30 billion!<\/p>\n

With regard to Vogtle Unit 4, Southern Company said that it made substantial progress, including the completion of hot functional testing and the receipt of all 157 fuel assemblies, as well as the 103G finding from the Nuclear Regulatory Commission, indicating that the acceptance criteria for Unit 4 have been met.<\/p>\n

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Southern Company<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The company’s current focus is on final testing and system turnover to prepare for the fuel load on Unit 4. The company projects that Unit 4 will be placed in service between the late fourth quarter of 2023 and the end of the first quarter of 2024.<\/p>\n

Furthermore, the company is exploring options to use nuclear power to produce green hydrogen. I believe in the future of hydrogen and consider nuclear energy to be the best source to produce it.<\/p>\n

However, for now, the company isn’t very specific about its plans.<\/p>\n

This is what Chris Womack, CEO of Southern Company, said during the 2Q23 earnings call when he was asked about Vogtle’s role in green hydrogen production (emphasis added):<\/p>\n

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Let me say something quickly about hydrogen, and I’ll let Dan touch on any rules from treasury. We’re participating in a number of processes DOE has with hydrogen hub<\/strong>. So we’re excited about that. As you may recall, we did a 20% blend at our Platt McDonough Gas site. So we’re excited about all the technology activity and the considerations that are going on around hydrogen. We look forward to seeing if we can develop this market and get the pricing right, get the transportation of the product right and then we can find off-takers<\/strong>. I mean, so we’re thrilled by the possibility and how Vogtle can continue to serve customers in Georgia. So there are a lot of aspects of hydrogen that we get really excited about. Clearly, there’s a lot of work that’s got to be — that we’ve got to work through to get to that point to make it viably commercial — commercially viable<\/strong>.<\/em><\/p>\n<\/blockquote>\n

Essentially, these comments make sense, as we’re in the early stages of commercial (green) hydrogen, which requires complex infrastructure, long-term contracts to make investments worthwhile, and so much more.<\/p>\n

Additionally, the company is looking into non-nuclear renewables as it is assessing the benefits of investment tax credits and production tax credits.<\/p>\n

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Southern Company<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The company, which is expected to reduce its emissions by 50% in 2030 (versus 2007) and 100% by 2050, generated only 16% of its energy from high-emission coal at the end of the second quarter.<\/p>\n

Half of its energy comes from low-emission natural gas. A third of its mix is completely free of emissions (ignoring the missions that come from the production of renewable energy technologies).<\/p>\n

Shareholder Remains In A Great Spot<\/h2>\n

Because of the imminent completion of the Vogtle expansion, the company’s capital expenditures are not expected to rise anymore. This year, CapEx is expected to peak at $8.5 billion, followed by a gradual decline to $8.0 billion in 2025.<\/p>\n

This paves the way for a potential free cash flow surge of $1.4 billion in 2023E to $1.9 billion in 2025E.<\/p>\n

At this point, I need to note two things:<\/p>\n