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Southern Company (SO) to Sell 33% Stake in Solar Portfolio

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Southern Company’s (SO - Free Report) subsidiary, Southern Power recently inked a deal to divest 33% stake in its solar portfolio, in a bid to further trim its debt woes. With demand of renewable energy picking up, Global Atlantic Financial Group Ltd. — a retirement, life and reinsurance company — will be acquiring one-third stake of Southern Power’s solar assets for a total consideration of $1.175 billion. Per the deal, Southern Power will be the general partner in the partnership, being the chief operator of the projects.

The acquired assets comprise 26 operating solar plants having 1.7 gigawatts of capacity that is sold to valued customers across the country under long-term contracts. These plants are spread across California, Georgia, Nevada, New Mexico, North Carolina and Texas, with the maximum number of projects in California and Georgia.

Post the announcement of the deal, shares of Southern Company have moved up more than 1% to eventually close at $43.99 on May 23. In fact, shares of the company have been witnessing a steady increase since the last three days, on announcement of the $6.5 billion divestment deal with the U.S.-based wholesale electricity supplier, NextEra Energy, Inc. (NEE - Free Report) on May 21.

Notably, the power giant Southern Company, which spent around $12 billion for the AGL Resources buyout in 2016 to expand and diversify its offerings, is heading toward the retrenchment road, weighed by its financial struggles. As of Mar 31, the company’s long-term debt stood at $44.4 billion, representing a debt-to-capital ratio of more than 63%.

These divestment deals are likely to be a prudent strategy for Southern Company, which is grappling with elevated leverage along with cost overruns in two of its large construction projects, Vogtle and Kemper. These sale agreements will help Southern Company to streamline its portfolio, boost utility returns, along with raise cash to repay debts and pay for the new reactors for its Vogtle Project. With limited cash flow and large amounts of investment to make, the deals would provide some relief to the company.

Zacks Rank and Key Picks

Currently, Southern Company carries a Zacks Rank #3 (Hold)

Some better-ranked players in the same industry include NRG Energy, Inc. (NRG - Free Report) and TerraForm Power, Inc. (TERP - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NRG Energy’s 2018 earnings are expected to grow 201.83% year over year.

TerraForm’s 2018 earnings are expected to grow 117.36% from the prior-year quarter.

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