Critical Review: Southern (SO) & Calpine (CPN)

Southern (NYSE: SO) and Calpine (NYSE:CPN) are both mid-cap utilities companies, but which is the superior stock? We will contrast the two businesses based on the strength of their valuation, earnings, institutional ownership, profitability, risk, dividends and analyst recommendations.

Volatility & Risk

Southern has a beta of 0.14, suggesting that its share price is 86% less volatile than the S&P 500. Comparatively, Calpine has a beta of 1.05, suggesting that its share price is 5% more volatile than the S&P 500.

Dividends

Southern pays an annual dividend of $2.32 per share and has a dividend yield of 5.2%. Calpine does not pay a dividend. Southern pays out 414.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Calpine has raised its dividend for 16 consecutive years.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Southern and Calpine, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Southern 5 5 7 0 2.12
Calpine 0 7 3 0 2.30

Southern currently has a consensus target price of $50.79, suggesting a potential upside of 13.26%. Calpine has a consensus target price of $14.86, suggesting a potential downside of 1.39%. Given Southern’s higher possible upside, equities analysts clearly believe Southern is more favorable than Calpine.

Valuation & Earnings

This table compares Southern and Calpine’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Southern $19.90 billion 2.26 $2.49 billion $0.56 80.07
Calpine $6.72 billion 0.81 $92.00 million ($0.07) -215.29

Southern has higher revenue and earnings than Calpine. Calpine is trading at a lower price-to-earnings ratio than Southern, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Southern and Calpine’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Southern 2.59% 10.81% 2.50%
Calpine -0.27% -7.68% -1.38%

Insider & Institutional Ownership

53.7% of Southern shares are owned by institutional investors. Comparatively, 85.9% of Calpine shares are owned by institutional investors. 1.0% of Southern shares are owned by company insiders. Comparatively, 1.2% of Calpine shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Summary

Southern beats Calpine on 11 of the 17 factors compared between the two stocks.

Southern Company Profile

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.

Calpine Company Profile

Calpine Corporation is a power generation company. The Company is engaged in the ownership and operation of primarily natural gas-fired and geothermal power plants in North America. The Company’s segments include West (including geothermal), Texas and East (including Canada). In the Northeast and Mid-Atlantic regions, the Company has generating units capable of burning either natural gas or fuel oil. As of December 31, 2016, the Company’s portfolio consisted of two types of power generation technologies, including natural gas-fired combustion turbines, such as combined-cycle plants, and renewable geothermal conventional steam turbines. As of December 31, 2016, the Company’s portfolio included 80 power plants, including one under construction, with an aggregate generation capacity of 25,908 Megawatt (MW) and 828 MW under construction. As of December 31, 2016, it had four MW of capacity from solar power generation technology at its Vineland Solar Energy Center in New Jersey.

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