Southern Company (SO Quick QuoteSO - Free Report) , a prominent entity in the U.S. utilities sector, plays a crucial role in the generation, transmission and distribution of electricity. Through its subsidiaries, the company provides electricity to millions of customers across Georgia, Alabama and Tennessee. Its diverse energy portfolio includes power generation from nuclear, coal, hydro, solar, wind and advanced battery storage.

Focused on embracing the future of energy, Southern is investing heavily in natural gas, renewable resources and innovative solutions like microgrids, with the aim of steering the energy sector toward sustainability. With such a wide-ranging mix of assets, Southern is in a strong position to lead the charge toward cleaner energy alternatives.

Around 90% of the company's earnings are derived from state-regulated electric and gas utilities, ensuring a stable, low-risk income stream for investors. This stable income, combined with its vast infrastructure and large market presence, sets Southern's standing in the U.S. energy landscape.

For those considering an investment in Southern, a key question is whether it is the right time to buy or simply hold on to their current shares. With a strong reputation in the utilities sector and an impressive range of energy assets, it is no surprise that many investors are interested in what the future holds for SO stock. While the company offers considerable growth potential, it also faces challenges that could affect its valuation in the short run.

Let us explore the factors that are currently boosting Southern stock and the potential risks that could concern investors.

Why Are Investors Bullish on SO?

Focus on Affordability and Customer-Centric Model: Southern emphasizes balancing reliability with affordability, a key factor in attracting large-load customers like data centers. The newly approved Georgia tariff framework provides contract clarity for data centers, ensuring long-term revenue stability without overburdening residential customers.

Robust Economic Development and Load Growth: The company highlighted a substantial pipeline of more than 50 GW in potential incremental load by the mid-2030s, with 10 GW already committed. Data center demand grew 11% year over year and industrial development, such as Hyundai’s plant in Georgia, supports long-term growth. The Southeast’s economic resilience and population growth further strengthen Southern’s outlook.

Digital Transformation and Grid Modernization: Southern is driving a comprehensive digital transformation by investing in smart grid technologies, advanced digital infrastructure and robust cybersecurity measures. These initiatives aim to boost operational efficiency and enhance the reliability of service for customers. Through its fiber optic subsidiary, Southern Telecom, the company supports the growing needs of data-intensive enterprises, aligning with the rising demand for digital connectivity. By leveraging AI-powered analytics, automating grid operations and strengthening system resilience, Southern is establishing itself as a forward-thinking, technology-enabled leader in the evolving energy sector.

Regulatory Support and Constructive Frameworks: Southern benefits from supportive regulatory environments across its service areas. Georgia Power’s Integrated Resource Plan (“IRP”) and requests for proposals for 13 GW of new energy resources are progressing, with key filings expected in July 2025. The company’s ability to recover investments through rate cases and fuel cost mechanisms provides earnings stability.

Dividend Growth and Shareholder Returns: The board approved an 8-cent per share annual dividend increase, marking the 24th consecutive yearly hike and 78 years of uninterrupted payouts. This consistent dividend growth, along with a manageable payout ratio of 60, reflects management’s confidence in cash flow sustainability and highlights SO as a strong option for income-focused investors.

What Market Conditions Could Harm SO Stock?

Regulatory and Political Uncertainty: Upcoming Georgia Power rate cases and IRP approvals in July 2025 present regulatory risk, particularly during an election year. Delays or unfavorable rulings regarding cost recovery (e.g., for storms or fuel) could impact earnings. Potential federal policy shifts, such as changes to IRA tax credits, add to uncertainty.

Exposure to Natural Gas Price Volatility: Natural gas remains a significant revenue source for Southern, but price volatility can affect profit margins and earnings stability. While many contracts allow the company to pass fuel costs on to customers, sharp price increases may attract heightened regulatory oversight. Moreover, the growing momentum toward electrification and potential policy constraints on natural gas infrastructure present long-term challenges to the company’s investments in distribution and pipeline assets.

Tariff and Supply-Chain Pressures: Tariffs on imported materials (e.g., solar panels, steel) may raise capital costs by 1-3%. While some mitigations exist (e.g., USMCA compliance), prolonged trade tensions or supply-chain disruptions could delay projects or compress returns.

Execution Risks in Large Load Pipeline: Although the 50+ GW load pipeline is impressive, only a portion is likely to materialize. Speculative projects, permitting delays or customer pullbacks (e.g., in the data center sector) could reduce growth projections. Management’s cautious tone reflects an awareness of this risk.

Stock Performance Is a Concern: SO’s share price has increased 8.9% year to date. However, this performance lags behind the broader Electric Power sub-industry, which has gained 9.8%, and the overall sector, up 9.3%. Compared with its peers in the sub-industry, SO has underperformed. For instance, Enel Chile S.A. (ENIC Quick QuoteENIC - Free Report) , CenterPoint Energy (CNP Quick QuoteCNP - Free Report) and DTE Energy (DTE Quick QuoteDTE - Free Report) have posted year-to-date gains of 27.8%, 17.3% and 12.7%, respectively. This relative underperformance may reflect investor concerns and could weigh on SO’s valuation going forward.

DTE Energy’s diversified clean energy strategy and CenterPoint Energy’s robust investment in grid modernization have contributed to their impressive stock performance. Similarly, Enel Chile S.A. benefits from the growing renewable portfolio in South America, strengthening its appeal among sustainability-focused investors.

Year-to-Date Share Price Performance: SO vs. Sector and Peers

Image Source: Zacks Investment Research

Final Thoughts on SO Stock

Southern has a strong growth outlook, driven by its focus on affordability, customer-centric models and investments in digital transformation and grid modernization. The company benefits from supportive regulatory environments and a substantial pipeline of economic development, particularly in the Southeast, where data center demand and industrial growth are increasing. Additionally, consistent dividend growth reflects its financial stability and appeal to income-focused investors.

However, the company faces risks, including regulatory uncertainty around upcoming rate cases, exposure to natural gas price volatility and potential supply-chain pressures due to tariffs. Its execution risks in large load pipeline plans also pose risks and recent stock performance has lagged behind industry peers, which may reflect investor concerns.

Given this mix of strengths and potential challenges, investors should wait for a more opportune entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolios.  Investors should also monitor the progress of competitors like Enel Chile S.A., CenterPoint Energy and DTE Energy, each of which presents unique growth opportunities within the evolving global utility landscape. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.