Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
electric utility of Southern Company’s size-$38.3 billion in market
capitalization-is not among the typical company covered in
the Small Cap Strategist weblog.Southern
and operates six dozen power plants in the southeastern U.S., generating 12,222
megawatts of power from a mix of fossil fuel, hydroelectric, nuclear and solar
plant assets.The company earned $2.68
in earnings per share on $16.5 billion in total electric power sales.Sales dipped in 2012 compared to the prior
year as mild weather conditions led to a fall off in heating and air
conditioning needs.Nonetheless, profits
were a bit higher in the year on higher profit margins.Indeed, Southern is a bit more profitable than
the industry average.Still Southern’s
stock trades a bit below the average multiples of earnings and cash flow.The gaggle of analysts following Southern
expect growth over the next year.The
consensus earnings estimate is $2.76 on $18.0 billion in total sales and
predicted growth rates are near 5.0%.
investors probably focus on Southern’s generous dividend payout ratio that has
resulted in a dividend yield of 4.5%.However, we are more interested in how progressive Southern appears as
one of the founding members of an international group devoted to developing carbon
U.S. managed to reduce its overall carbon emissions in 2011 by 1.7%.The verdict is still out on 2012.One of the principal drivers of reduced
emissions is the swap of coal-based power plants for new plants that burn
cleaner natural gas.As beguiling as
this dynamic might be given ample natural gas supplies, it may still not be enough.This is apparently why Southern is hard at
work trying to find a means to tuck away offending carbon emissions.
Company manages and operates the U.S. Department of Energy's National Carbon Capture Center.The Center is testing a technology which
would capture carbon dioxide in flue gas and then deposit then deposit it
underground. An amine solvent reacts with the carbon dioxide in the flue gas,
making it possible to sequester it. Pilot tests are relying on an underground oil
field near Alabama where the Center is located.Southern claims this is the largest carbon capture demonstration in the
world, capturing 150,000 tons of carbon dioxide annually.
project has no impact on Southern’s near-term financial results.However, with 34 emission-belching fossil
fuel plants in Southern’s power generation portfolio, it will benefit in the
long-term from a technology that could provide a shield from emissions fines.Greenhouse gas emissions (GHGs), of which
carbon dioxide is the principal culprit, are regulated from large stationary
sources under the EPA’s GHG Tailoring Rule.In January 2013, an oil and gas production company became the first
business in the country fined by EPA for violations of the Act.The fine totaled $34,000. It is not such a significant sum, but the
action makes clear the EPA will pursue fines.
the Clean Air Act, new power plants may not emit more than 1,000 pounds of
carbon dioxide per megawatt hour.Most
new natural gas-fired plants meet that standard.However, even new coal-fired plants emit as
much as 1,800 pounds per megawatt hour.That means realize the value of existing coal-fired plant assets or to
build new coal-fired plants where natural gas is not available, utility
companies must capture the carbon dioxide before it hits the atmosphere.
Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies