Southern Company (SO Quick QuoteSO - Free Report) has become one of the largest players in the U.S. utility sector, providing electricity and natural gas to nearly 9 million customers through its seven subsidiaries. The company’s infrastructure is massive, with 46 gigawatts of power generation capacity, 200,000 miles of electric transmission and distribution lines, and more than 80,000 miles of natural gas pipelines. But what truly sets SO apart is how it’s evolved over time. It’s no longer just your typical electric utility.

The company has expanded the portfolio to include coal, natural gas, nuclear and hydroelectric power, while also increasing its investments in renewables and energy storage. A key moment in the growth came with the 2016 purchase of AGL Resources, which boosted SO’s natural gas operations and strengthened its position in the market.

Now, with the stock performing poorly over the last three months, investors are wondering: Is this a good time to buy in, or should they hold off and wait for a better opportunity?

For investors, the question comes down to Southern Company's solid growth strategy, strong infrastructure and the shift toward cleaner energy. Timing is everything — whether it’s the right moment to get in depends on how confident one is in the company’s future and the direction of the broader utility market.

SO’s Strong Fundamentals: Why the Stock’s Recent Dip Doesn’t Tell the Whole Story

Strategic Capital Investment Plan Execution: Southern Company is actively executing on a $76 billion capital plan to meet growing demand. This includes constructing approximately 2.5 gigawatts of new natural gas and battery storage generation, acquiring the 900 MW Lindsay Hill plant and advancing the South System 4 gas pipeline expansion, ensuring system reliability and capacity for future load.

Disciplined and Protective Contract Structures: New large-load contracts, particularly in Georgia under updated tariff rules, include strong customer protections for Southern Company. These feature minimum bills that cover all costs regardless of power usage and are structured with credit-quality counterparties, ensuring cost recovery and profitability for investments made to serve this new demand.

Massive and Concrete Large Load Pipeline: Southern Company has a formidable pipeline of more than 50 gigawatts of potential incremental load by the mid-2030s from data centers and manufacturers. This is not just speculative; the company has already signed contracts for 7 gigawatts by 2029 and is in advanced discussions for several more, providing high visibility into growth.

Exceptional and Sustained Electric Demand Growth: The company is experiencing its highest annual weather-normalized retail sales growth since 2010, excluding the pandemic, with growth across all customer classes. The commercial sector grew 3.5% in the third quarter, bolstered by a 17% increase in data center sales. This demonstrates robust and broad-based economic strength within Southern Company's service territories.

What Might Hinder the Growth Outlook?

SO Lags Sub-Industry and Sector: In the past three months, SO has experienced a marked underperformance relative to the Electric Power utility sub-industry (ZSI193M) and the broader utility sector (ZS14M). Southern Company's share price dropped 9%, which is a steeper decline compared with the Electric Power sub-industry and the utility sector's broader decrease of 1.6% and 2.2%, respectively. The graph highlights how SO has consistently trailed behind both the sub-industry and the utility sector, indicating weaker performance during this period.

3 Month Performance Snapshot

Image Source: Zacks Investment Research

Execution Risk on Massive Capital Program: Southern Company's $76 billion, multi-year capital plan carries inherent execution risk. Challenges like supply-chain delays, cost overruns, labor shortages or permitting issues — as historically seen with Vogtle and Kemper — could lead to budget breaches, schedule slips and earnings volatility.

Dependence on a Fraction of a Large Pipeline: While the load pipeline is more than 50 GW, management's disciplined forecast assumes only a fraction will materialize. The company's growth narrative is highly reliant on converting this speculative pipeline into firm contracts and a slowdown in data center or industrial investment could significantly lower realized growth.

High and Rising Interest Expense: The company cited higher interest costs as a partial offset to its strong quarterly earnings. With a large debt footprint and continued borrowing planned for capital projects, further increases in interest rates could materially pressure earnings, especially at the holding company level.

SO Stock: Patience or Action, What’s the Right Move for Investors?

Southern Company is executing a significant $76 billion capital investment plan to address growing demand, including new natural gas and battery storage generation and expanding its infrastructure to ensure long-term system reliability. The company is also benefiting from strong customer protections and high visibility into growth, with contracts for 7 gigawatts of load already signed and more in progress.

However, the company has underperformed relative to its industry, experiencing a 9% drop in share price in the past three months. Additionally, the large capital program carries execution risks, including potential delays, cost overruns and challenges in converting its massive load pipeline into firm contracts. With rising interest expenses and the pressure of an expansive debt footprint, investors should be cautious. 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) utility stock to their portfolios.

Key Picks

Investors interested in the utility sector might look at some better-ranked stocks like Algonquin Power & Utilities (AQN Quick QuoteAQN - Free Report) , Alliant Energy (LNT Quick QuoteLNT - Free Report) and Ameren Corporation (AEE Quick QuoteAEE - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Algonquin Power & Utilities is worth approximately $4.97 billion. It is a diversified, international utility company headquartered in Canada. Algonquin Power & Utilities operates two main business groups: a regulated services group that provides natural gas, electric and water utility services and a renewable energy group that generates clean power. The company's goal is to be a leader in the energy transition, focusing on sustainability and growth through both acquisitions and organic initiatives.

Alliant Energy is worth approximately $17.31 billion.  The company is a regulated U.S. utility providing electric and natural gas services mainly in Iowa and Wisconsin. Alliant Energy operates through its subsidiaries, IPL and WPL, and has a strong focus on renewable energy, particularly wind and solar. It emphasizes long-term infrastructure investment and stable earnings from regulated operations.

Ameren is worth approximately $28.13 billion. The company is a Midwest utility company serving customers in Missouri and Illinois with electric and natural gas services. It operates through regulated subsidiaries and owns a large electric transmission network. Ameren is actively investing in clean energy, grid reliability and modernization to support long-term growth.