Jefferies Upgrades Southern Co. to Buy with $100 Price Target

Jefferies upgrades Southern Co. to Buy from Hold with a $100 price target, citing the stock's 15% premium to electric utility peers based on forecast 2027 earnings as justified. The upgrade is seen as laying the foundation for a long-term quality inflection.

In a significant move, Jefferies has upgraded Southern Co. (NYSE: SO) to a Buy rating with a $100 price target, citing the stock's 15% premium to electric utility peers based on forecast 2027 earnings as justified. The upgrade is seen as laying the foundation for a long-term quality inflection for the company [1].

Analyst Julien Dumoulin-Smith at Jefferies highlighted multiple factors converging in 2027 that are expected to drive a step-change in Southern's earnings power. These include construction projects transitioning from AFUDC to operational earnings, tax credit amortization from both deferrals and new battery storage, and the roll-off of debt refinancing drags. Dumoulin-Smith believes this confluence will allow Southern to rebase its 5%-7% EPS growth guidance from a higher 2027 starting point, effectively extending the premium growth trajectory beyond current consensus modeling [1].

Once the market appreciates Southern's higher earnings trajectory, Jefferies anticipates multiple expansion due to the company's EPS growth moving higher and doing so on a much longer timeline. This is expected to follow the early July announcement of the results from the 2029-31 All-Source RFP [1].

Separately, Algonquin Power & Utilities Corp. (AQN) announced plans to invest about $1.4 billion in its electric utilities through the end of 2027. The new CEO Rod West aims to grow the company's rate base to about $9.1 billion by the end of 2027 from a little less than $8 billion in 2024. West expects Algonquin's total capex to grow to $785 million in 2026 and about $1.04 billion in 2027, with the electric operations receiving about 57% of that cash [2].

Additionally, Southern Co. has launched a pilot program with the Electric Power Research Institute (EPRI) to accelerate energy innovation. The Emerging Technologies Pilot Program (ETP Program) aims to advance affordable, reliable, and resilient energy solutions by integrating cutting-edge technologies. Southern Co will benefit from EPRI's resources to integrate new technologies efficiently, reduce risks, and enhance its competitive edge in the energy sector [3].

References:
[1] https://seekingalpha.com/news/4455945-southern-raised-to-buy-at-jefferies-seen-laying-foundation-for-long-term-quality-inflection
[2] https://www.tdworld.com/utility-business/article/55294730/algonquin-leaders-outline-capex-plans-through-2027
[3] https://www.gurufocus.com/news/2900018/southern-co-so-and-epri-launch-pilot-program-to-accelerate-energy-innovation-so-stock-news