Southern Company and Duke Energy, Which Would I Prefer?


Looking at some utility companies

The publicly listed utility companies have underperformed the broader stock market so far this year. This early, taking a look at some of these companies’ financials and determining a possible investment seems logical since utilities always provide dividends to its shareholders.

The two companies first tackled here are Duke Energy and Southern Company. According to Reuters, the companies have 4.52% and 5.24% dividend yields, respectively.

In current market capitalization, the older Duke Energy is bigger than Southern Company by $10.7 billion at $55.2 billion.

As of its recent filing, Duke also had a book value of $41.6 billion compared to Southern’s $24 billion.

As per Duke’s recent business performance that ended in September 2017, the utility delivered 3.5% growth in revenue, while -0.97% decline in profits. Southern, on the other hand, generated 18.3% rise in revenue and 85% drop in profits.

Southern recorded good amount of increase in revenue secondary to its Southern Company Gas.
As per related filings, Southern Company acquired AGL Resources in June 2016 for ~$8 billion creating the Southern Company Gas. The Southern Company Gas business accounted for $2.3 billion increase in Southern’s operating revenues.

Duke Energy, meanwhile, had gotten itself too in acquiring another gas company, Piedmont, for $4.9 billion about months after Southern announced its acquisition in mid 2015.

Gas revenues for Duke and Southern rose 230% and 430%, respectively, while operating expenses climbed 4% and 47% thus leaving Southern with much less profits in the period.

Duke also had total debt of $53.3 billion (1.3x debt-equity ratio) compared to Southern’s $50 billion (2.08x).

In the past three years, Duke accumulated $9 million in free cash flow and taking in $1 billion in financing activities while Southern generated outflows of $3.7 billion and took in $18.1 billion in financing.

Duke has fallen 6.3% year-to-date while Southern fell 7.86%.

Having applied historical book value growth figures and a conservative 20% margin indicated that Duke and Southern market prices were overvalued by 50% and 115%, respectively.

In summary, Duke may still be seen as of a bit cheaper than Southern at current prices but still is overvalued.