Intrinsic value of Southern - SO

Previous Close

$50.97

  Intrinsic Value

$132.15

stock screener

  Rating & Target

str. buy

+159%

Previous close

$50.97

 
Intrinsic value

$132.15

 
Up/down potential

+159%

 
Rating

str. buy

We calculate the intrinsic value of SO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 50.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.76
  21.80
  20.12
  18.61
  17.25
  16.02
  14.92
  13.93
  13.04
  12.23
  11.51
  10.86
  10.27
  9.74
  9.27
  8.84
  8.46
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.09
  5.98
  5.88
  5.79
Revenue, $m
  19,454
  24,233
  29,109
  34,526
  40,480
  46,966
  53,974
  61,491
  69,507
  78,009
  86,987
  96,432
  106,337
  116,700
  127,518
  138,795
  150,536
  162,749
  175,446
  188,642
  202,355
  216,606
  231,418
  246,818
  262,834
  279,498
  296,843
  314,908
  333,729
  353,350
  373,814
Variable operating expenses, $m
 
  18,160
  21,688
  25,607
  29,916
  34,609
  39,680
  45,119
  50,919
  57,071
  63,567
  69,776
  76,944
  84,442
  92,270
  100,429
  108,925
  117,762
  126,949
  136,498
  146,421
  156,732
  167,450
  178,593
  190,182
  202,239
  214,790
  227,861
  241,481
  255,678
  270,485
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  15,267
  18,160
  21,688
  25,607
  29,916
  34,609
  39,680
  45,119
  50,919
  57,071
  63,567
  69,776
  76,944
  84,442
  92,270
  100,429
  108,925
  117,762
  126,949
  136,498
  146,421
  156,732
  167,450
  178,593
  190,182
  202,239
  214,790
  227,861
  241,481
  255,678
  270,485
Operating income, $m
  4,629
  6,073
  7,421
  8,918
  10,564
  12,357
  14,294
  16,372
  18,588
  20,938
  23,420
  26,656
  29,394
  32,258
  35,248
  38,365
  41,611
  44,987
  48,496
  52,144
  55,935
  59,874
  63,968
  68,225
  72,652
  77,258
  82,053
  87,046
  92,249
  97,672
  103,329
EBITDA, $m
  7,552
  9,054
  10,876
  12,899
  15,124
  17,547
  20,166
  22,974
  25,969
  29,146
  32,500
  36,029
  39,730
  43,601
  47,643
  51,856
  56,243
  60,806
  65,550
  70,480
  75,604
  80,928
  86,462
  92,216
  98,200
  104,425
  110,906
  117,655
  124,687
  132,018
  139,664
Interest expense (income), $m
  1,100
  1,592
  2,212
  2,916
  3,697
  4,557
  5,493
  6,505
  7,590
  8,747
  9,974
  11,270
  12,634
  14,064
  15,559
  17,121
  18,749
  20,444
  22,207
  24,039
  25,944
  27,924
  29,981
  32,119
  34,342
  36,654
  39,059
  41,563
  44,171
  46,888
  49,720
Earnings before tax, $m
  3,480
  4,482
  5,209
  6,003
  6,867
  7,800
  8,801
  9,867
  10,998
  12,191
  13,445
  15,385
  16,760
  18,194
  19,689
  21,244
  22,862
  24,543
  26,290
  28,105
  29,990
  31,950
  33,987
  36,106
  38,310
  40,604
  42,994
  45,483
  48,078
  50,785
  53,609
Tax expense, $m
  951
  1,210
  1,407
  1,621
  1,854
  2,106
  2,376
  2,664
  2,969
  3,292
  3,630
  4,154
  4,525
  4,912
  5,316
  5,736
  6,173
  6,627
  7,098
  7,588
  8,097
  8,627
  9,177
  9,749
  10,344
  10,963
  11,608
  12,280
  12,981
  13,712
  14,474
Net income, $m
  2,493
  3,272
  3,803
  4,382
  5,013
  5,694
  6,425
  7,203
  8,029
  8,899
  9,815
  11,231
  12,235
  13,282
  14,373
  15,508
  16,689
  17,916
  19,192
  20,516
  21,893
  23,324
  24,811
  26,357
  27,966
  29,641
  31,385
  33,203
  35,097
  37,073
  39,134

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,975
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  109,697
  130,991
  157,346
  186,625
  218,813
  253,872
  291,751
  332,386
  375,714
  421,671
  470,200
  521,253
  574,796
  630,809
  689,287
  750,243
  813,705
  879,722
  948,356
  1,019,687
  1,093,813
  1,170,844
  1,250,910
  1,334,150
  1,420,723
  1,510,798
  1,604,559
  1,702,204
  1,803,943
  1,910,001
  2,020,615
Adjusted assets (=assets-cash), $m
  107,722
  130,991
  157,346
  186,625
  218,813
  253,872
  291,751
  332,386
  375,714
  421,671
  470,200
  521,253
  574,796
  630,809
  689,287
  750,243
  813,705
  879,722
  948,356
  1,019,687
  1,093,813
  1,170,844
  1,250,910
  1,334,150
  1,420,723
  1,510,798
  1,604,559
  1,702,204
  1,803,943
  1,910,001
  2,020,615
Revenue / Adjusted assets
  0.181
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
Average production assets, $m
  9,673
  11,777
  14,147
  16,779
  19,673
  22,826
  26,231
  29,885
  33,780
  37,912
  42,276
  46,866
  51,680
  56,716
  61,974
  67,454
  73,160
  79,096
  85,267
  91,680
  98,345
  105,271
  112,469
  119,953
  127,737
  135,836
  144,266
  153,045
  162,193
  171,728
  181,673
Working capital, $m
  -3,195
  -412
  -495
  -587
  -688
  -798
  -918
  -1,045
  -1,182
  -1,326
  -1,479
  -1,639
  -1,808
  -1,984
  -2,168
  -2,360
  -2,559
  -2,767
  -2,983
  -3,207
  -3,440
  -3,682
  -3,934
  -4,196
  -4,468
  -4,751
  -5,046
  -5,353
  -5,673
  -6,007
  -6,355
Total debt, $m
  47,457
  63,191
  83,300
  105,640
  130,199
  156,950
  185,851
  216,856
  249,915
  284,980
  322,007
  360,961
  401,814
  444,552
  489,171
  535,680
  584,102
  634,473
  686,841
  741,266
  797,824
  856,599
  917,689
  981,202
  1,047,257
  1,115,984
  1,187,523
  1,262,026
  1,339,654
  1,420,576
  1,504,974
Total liabilities, $m
  84,212
  99,946
  120,055
  142,395
  166,954
  193,705
  222,606
  253,611
  286,670
  321,735
  358,762
  397,716
  438,569
  481,307
  525,926
  572,435
  620,857
  671,228
  723,596
  778,021
  834,579
  893,354
  954,444
  1,017,957
  1,084,012
  1,152,739
  1,224,278
  1,298,781
  1,376,409
  1,457,331
  1,541,729
Total equity, $m
  25,485
  31,045
  37,291
  44,230
  51,859
  60,168
  69,145
  78,776
  89,044
  99,936
  111,437
  123,537
  136,227
  149,502
  163,361
  177,808
  192,848
  208,494
  224,760
  241,666
  259,234
  277,490
  296,466
  316,194
  336,711
  358,059
  380,280
  403,422
  427,534
  452,670
  478,886
Total liabilities and equity, $m
  109,697
  130,991
  157,346
  186,625
  218,813
  253,873
  291,751
  332,387
  375,714
  421,671
  470,199
  521,253
  574,796
  630,809
  689,287
  750,243
  813,705
  879,722
  948,356
  1,019,687
  1,093,813
  1,170,844
  1,250,910
  1,334,151
  1,420,723
  1,510,798
  1,604,558
  1,702,203
  1,803,943
  1,910,001
  2,020,615
Debt-to-equity ratio
  1.862
  2.040
  2.230
  2.390
  2.510
  2.610
  2.690
  2.750
  2.810
  2.850
  2.890
  2.920
  2.950
  2.970
  2.990
  3.010
  3.030
  3.040
  3.060
  3.070
  3.080
  3.090
  3.100
  3.100
  3.110
  3.120
  3.120
  3.130
  3.130
  3.140
  3.140
Adjusted equity ratio
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237
  0.237

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,493
  3,272
  3,803
  4,382
  5,013
  5,694
  6,425
  7,203
  8,029
  8,899
  9,815
  11,231
  12,235
  13,282
  14,373
  15,508
  16,689
  17,916
  19,192
  20,516
  21,893
  23,324
  24,811
  26,357
  27,966
  29,641
  31,385
  33,203
  35,097
  37,073
  39,134
Depreciation, amort., depletion, $m
  2,923
  2,981
  3,455
  3,981
  4,560
  5,190
  5,871
  6,602
  7,381
  8,208
  9,080
  9,373
  10,336
  11,343
  12,395
  13,491
  14,632
  15,819
  17,053
  18,336
  19,669
  21,054
  22,494
  23,991
  25,547
  27,167
  28,853
  30,609
  32,439
  34,346
  36,335
Funds from operations, $m
  5,772
  6,252
  7,257
  8,363
  9,573
  10,884
  12,296
  13,805
  15,410
  17,107
  18,895
  20,604
  22,571
  24,625
  26,768
  28,999
  31,321
  33,736
  36,245
  38,852
  41,562
  44,378
  47,305
  50,348
  53,514
  56,808
  60,238
  63,812
  67,535
  71,418
  75,469
Change in working capital, $m
  878
  -74
  -83
  -92
  -101
  -110
  -119
  -128
  -136
  -145
  -153
  -161
  -168
  -176
  -184
  -192
  -200
  -208
  -216
  -224
  -233
  -242
  -252
  -262
  -272
  -283
  -295
  -307
  -320
  -334
  -348
Cash from operations, $m
  4,894
  6,326
  7,340
  8,455
  9,674
  10,995
  12,415
  13,933
  15,546
  17,252
  19,048
  20,765
  22,739
  24,801
  26,952
  29,191
  31,521
  33,943
  36,461
  39,077
  41,795
  44,620
  47,556
  50,610
  53,786
  57,092
  60,533
  64,119
  67,855
  71,752
  75,817
Maintenance CAPEX, $m
  0
  -1,935
  -2,355
  -2,829
  -3,356
  -3,935
  -4,565
  -5,246
  -5,977
  -6,756
  -7,582
  -8,455
  -9,373
  -10,336
  -11,343
  -12,395
  -13,491
  -14,632
  -15,819
  -17,053
  -18,336
  -19,669
  -21,054
  -22,494
  -23,991
  -25,547
  -27,167
  -28,853
  -30,609
  -32,439
  -34,346
New CAPEX, $m
  -7,310
  -2,104
  -2,370
  -2,632
  -2,894
  -3,152
  -3,406
  -3,654
  -3,896
  -4,132
  -4,363
  -4,590
  -4,814
  -5,036
  -5,258
  -5,481
  -5,706
  -5,936
  -6,171
  -6,413
  -6,665
  -6,926
  -7,199
  -7,484
  -7,784
  -8,099
  -8,430
  -8,779
  -9,147
  -9,536
  -9,945
Cash from investing activities, $m
  -20,048
  -4,039
  -4,725
  -5,461
  -6,250
  -7,087
  -7,971
  -8,900
  -9,873
  -10,888
  -11,945
  -13,045
  -14,187
  -15,372
  -16,601
  -17,876
  -19,197
  -20,568
  -21,990
  -23,466
  -25,001
  -26,595
  -28,253
  -29,978
  -31,775
  -33,646
  -35,597
  -37,632
  -39,756
  -41,975
  -44,291
Free cash flow, $m
  -15,154
  2,287
  2,615
  2,993
  3,424
  3,908
  4,444
  5,033
  5,673
  6,364
  7,102
  7,720
  8,552
  9,429
  10,351
  11,316
  12,324
  13,376
  14,471
  15,610
  16,794
  18,025
  19,304
  20,632
  22,012
  23,446
  24,936
  26,486
  28,099
  29,778
  31,526
Issuance/(repayment) of debt, $m
  13,973
  17,709
  20,109
  22,340
  24,559
  26,750
  28,901
  31,005
  33,059
  35,065
  37,027
  38,954
  40,853
  42,738
  44,619
  46,509
  48,422
  50,371
  52,368
  54,426
  56,558
  58,775
  61,090
  63,513
  66,055
  68,727
  71,540
  74,503
  77,627
  80,922
  84,398
Issuance/(repurchase) of shares, $m
  3,758
  2,288
  2,443
  2,557
  2,616
  2,615
  2,552
  2,427
  2,240
  1,992
  1,686
  868
  455
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  17,829
  19,997
  22,552
  24,897
  27,175
  29,365
  31,453
  33,432
  35,299
  37,057
  38,713
  39,822
  41,308
  42,738
  44,619
  46,509
  48,422
  50,371
  52,368
  54,426
  56,558
  58,775
  61,090
  63,513
  66,055
  68,727
  71,540
  74,503
  77,627
  80,922
  84,398
Total cash flow (excl. dividends), $m
  2,675
  22,284
  25,168
  27,890
  30,599
  33,273
  35,898
  38,466
  40,973
  43,421
  45,816
  47,542
  49,860
  52,167
  54,969
  57,825
  60,746
  63,746
  66,838
  70,036
  73,352
  76,800
  80,393
  84,144
  88,067
  92,173
  96,476
  100,989
  105,726
  110,700
  115,925
Retained Cash Flow (-), $m
  -4,166
  -5,560
  -6,246
  -6,939
  -7,628
  -8,309
  -8,977
  -9,631
  -10,269
  -10,892
  -11,501
  -12,100
  -12,690
  -13,275
  -13,859
  -14,447
  -15,041
  -15,646
  -16,266
  -16,906
  -17,568
  -18,256
  -18,975
  -19,728
  -20,518
  -21,348
  -22,221
  -23,142
  -24,112
  -25,136
  -26,215
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  16,724
  18,921
  20,951
  22,970
  24,964
  26,921
  28,835
  30,704
  32,529
  34,315
  35,442
  37,171
  38,892
  41,110
  43,378
  45,706
  48,100
  50,572
  53,130
  55,784
  58,544
  61,418
  64,416
  67,549
  70,825
  74,254
  77,847
  81,614
  85,564
  89,709
Discount rate, %
 
  10.20
  10.71
  11.25
  11.81
  12.40
  13.02
  13.67
  14.35
  15.07
  15.82
  16.61
  17.45
  18.32
  19.23
  20.20
  21.21
  22.27
  23.38
  24.55
  25.77
  27.06
  28.42
  29.84
  31.33
  32.90
  34.54
  36.27
  38.08
  39.99
  41.98
PV of cash for distribution, $m
 
  15,176
  15,438
  15,218
  14,699
  13,916
  12,918
  11,761
  10,501
  9,196
  7,898
  6,535
  5,397
  4,367
  3,502
  2,748
  2,107
  1,578
  1,152
  820
  568
  383
  250
  159
  97
  58
  33
  18
  10
  5
  2
Current shareholders' claim on cash, %
  100
  95.7
  92.1
  89.0
  86.5
  84.3
  82.6
  81.2
  80.0
  79.1
  78.5
  78.2
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0
  78.0

The Southern Company (Southern Company) is a holding company. The Company owns all of the stock of the traditional electric operating companies and the parent entities of Southern Power Company (Southern Power) and Southern Company Gas, and owns other direct and indirect subsidiaries. The Company's segments include Gas distribution operations, Gas marketing services, Wholesale gas services, Gas midstream operations and All other. The Gas distribution operations segment includes natural gas local distribution utilities that construct, manage, and maintain intrastate natural gas pipelines and gas distribution facilities in seven states. The Gas marketing services segment provides natural gas commodity and related services to customers markets that provide for customer choice. The Wholesale gas services segment engages in natural gas storage and gas pipeline arbitrage. The Gas midstream operations consist primarily of gas pipeline investments, with storage and fuels.

FINANCIAL RATIOS  of  Southern (SO)

Valuation Ratios
P/E Ratio 20.2
Price to Sales 2.5
Price to Book 2
Price to Tangible Book
Price to Cash Flow 10.3
Price to Free Cash Flow -20.9
Growth Rates
Sales Growth Rate 13.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1.1%
Cap. Spend. - 3 Yr. Gr. Rate 6%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 167.3%
Total Debt to Equity 186.2%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital 4.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.5%
Return On Equity 10.7%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 37.7%
EBITDA Margin - 3 Yr. Avg. 36.5%
Operating Margin 23.3%
Oper. Margin - 3 Yr. Avg. 22.5%
Pre-Tax Margin 17.5%
Pre-Tax Margin - 3 Yr. Avg. 18.2%
Net Profit Margin 12.5%
Net Profit Margin - 3 Yr. Avg. 12.5%
Effective Tax Rate 27.3%
Eff/ Tax Rate - 3 Yr. Avg. 30.9%
Payout Ratio 84.4%

SO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SO stock intrinsic value calculation we used $19896 million for the last fiscal year's total revenue generated by Southern. The default revenue input number comes from 2016 income statement of Southern. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SO stock valuation model: a) initial revenue growth rate of 21.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 10.2%, whose default value for SO is calculated based on our internal credit rating of Southern, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Southern.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SO stock the variable cost ratio is equal to 75.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Southern.

Corporate tax rate of 27% is the nominal tax rate for Southern. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SO are equal to 48.6%.

Life of production assets of 4.4 years is the average useful life of capital assets used in Southern operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SO is equal to -1.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $25485 million for Southern - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 999.425 million for Southern is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Southern at the current share price and the inputted number of shares is $50.9 billion.

RELATED COMPANIES Price Int.Val. Rating
DUK Duke Energy 88.52 106.48  buy
NEE NextEra Energy 156.04 200.20  buy
D Dominion Energ 81.32 66.74  hold
ETR Entergy 86.51 56.57  sell
SCG Scana 43.45 102.44  str.buy
EIX Edison Interna 80.89 89.86  hold
PCG PG&E 54.00 38.90  sell
EXC Exelon 41.26 85.48  str.buy
AEP American Elect 76.38 45.64  sell

COMPANY NEWS

▶ Major Investments in Southern Company in 3Q17   [07:32AM  Market Realist]
▶ Duke Energy Expects Higher Dividend Growth   [09:42AM  Market Realist]
▶ Another Utility Bets Billions on Renewable Energy   [Nov-12-17 02:07PM  Motley Fool]
▶ US Utilities: Where the Stocks Might Go from Here   [Nov-06-17 04:30PM  Market Realist]
▶ What Happened in Utilities Last Week?   [01:26PM  Market Realist]
▶ Whats Southern Companys Outlook?   [10:31AM  Market Realist]
▶ Whats Southern Companys Implied Volatility?   [09:02AM  Market Realist]
▶ Why Southern Company Stock Continues to Look Strong   [Nov-02-17 05:55PM  Market Realist]
▶ Southern Company Beat 3Q17 Earnings Estimates   [04:25PM  Market Realist]
▶ What Drove Southern Companys 3Q17 Revenues?   [02:52PM  Market Realist]
▶ Southern Co. beats 3Q profit forecasts   [07:05AM  Associated Press]
▶ Puerto Rico to scrap controversial $300M energy contract   [Oct-30-17 10:42AM  Yahoo Finance Video]
▶ 3 High-Yield Utility Stocks   [Oct-28-17 10:47AM  Motley Fool]
▶ New products now available on Georgia Power Marketplace   [Oct-26-17 05:01PM  PR Newswire]
▶ Georgia Power introduces new Community Solar program   [Oct-19-17 12:15PM  PR Newswire]
▶ SO, NEE, and DUK: Top Utilities Target Prices   [01:06PM  Market Realist]
▶ Analyzing Southern Companys Current Valuation   [11:23AM  Market Realist]
▶ US regulators OK Atlantic Coast, Mountain Valley pipelines   [Oct-13-17 10:43PM  Associated Press]
▶ Second steam generator placed for Vogtle Unit 3   [Oct-12-17 01:00PM  PR Newswire]
▶ Alabama Power Dividends Declared   [10:43AM  PR Newswire]
▶ Is The War On Coal Really Over?   [Oct-11-17 03:00PM  Oilprice.com]
▶ What Utilities Chart Indicators Suggest   [01:35PM  Market Realist]
▶ Georgia Power prepared for threat of Tropical Storm Nate   [Oct-06-17 02:06PM  PR Newswire]
Financial statements of SO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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