Stocks operating in the Zacks Utility-Electric Power industry present an attractive investment opportunity, supported by stable cash flows and the predictability of regulated business models. Most utilities benefit from long-term power purchase agreements that provide revenue stability and reduce exposure to economic fluctuations. Growing electricity demand and continued infrastructure investments are enhancing operational efficiency, enabling these companies to generate consistent earnings and sustain dependable dividend payouts.
NextEra Energy Inc. NEE and The Southern Company SO are two of the leading U.S. electric utilities that are making significant investments in renewable energy, positioning themselves at the forefront of the transition to cleaner power generation. As decarbonization efforts gain momentum, utilities that embrace renewable and low-carbon technologies stand to benefit from lower fuel-cost volatility, broader market opportunities and stronger long-term growth prospects, making them increasingly attractive to both institutional and retail investors.
NextEra Energy is a leading utility company with strong growth prospects driven by its expanding clean energy portfolio and stable regulated operations. Its Florida Power & Light business generates reliable cash flows under a regulated framework, while NextEra Energy Resources remains a leader in wind, solar and battery storage projects. Backed by disciplined capital allocation and a strong commitment to decarbonization, the company is well positioned to benefit from the ongoing transition to cleaner energy.
Southern Company offers attractive long-term value through its regulated utility operations, diversified generation portfolio and consistent dividend growth. Its investments in nuclear power and renewable energy support a proactive decarbonization strategy, positioning the company to benefit from the ongoing energy transition.
As both Southern Company and NextEra Energy are leading utility players, comparing their fundamentals can help determine the more compelling investment opportunity.
NEE & SO’s Earnings Growth Projections
The Zacks Consensus Estimate for NextEra Energy’s earnings per share in 2026 and 2027 indicates year-over-year growth of 8.09% and 8.84%, respectively. Long-term (three to five years) earnings growth per share is pegged at 8.51%.
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The Zacks Consensus Estimate for Southern Company’s earnings per share in 2026 and 2027 indicates year-over-year growth of 6.51% and 7.45%, respectively. Long-term growth per share is pegged at 7.23%.
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Debt to Capital
The Zacks Utilities sector is a capital-intensive one, and huge investments are required at regular intervals to upgrade, maintain and expand operations. The usage of new evolving technology also requires investments. Therefore, utilities borrow from the market and add it to their internal cash generation to fund the long-term investments. The current interest rate of 3.5% and prospects of further decline by the end of this year will be beneficial for the capital-intensive utilities.
NEE’s debt-to-capital currently stands at 61.04% compared with SO’s 64.61%.
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Return on Invested Capital
Return on Equity (“ROIC”) is an essential financial indicator that evaluates a company’s efficiency in generating profits from the equity invested by its shareholders. It demonstrates how well management is utilizing the capital provided to increase earnings and deliver value.
NEE’s current ROIC is 3.69% compared with SO’s 3.38% and the industry’s 3.68%.
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Valuation
NextEra Energy currently appears to be trading at a marginal premium compared with Southern Company on a Price/Earnings Forward 12-month basis. (P/E- F12M).
NEE is currently trading at 20.77X, while SO is trading at 19.64X compared with the industry’s 15.61X.
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NEE & SO’s Dividend Yield
Dividends are regular payments made by a company to its shareholders and represent a direct way for investors to earn a return on their investment. They are an important indicator of a company’s financial health and stability, often signaling strong cash flow and consistent earnings. Utilities are known for regular dividend payments to their shareholders.
Currently, the dividend yield for NextEra Energy is 2.87%, while the same for Southern Company is 3.27%.
NEE & SO’s Capital Investment
NextEra Energy plans more than $94.1 billion in capital investment through 2030 to expand clean energy capacity. Southern Company plans to invest $78.1 billion in capital expenditures through 2030 to strengthen its operations.
Both companies are investing in their generation to meet the rising demand, modernize the grid and upgrade the infrastructure to provide reliable round-the-clock electricity to customers.
Price Performance
Southern Company’s shares have gained 2.6% in the past year compared with NextEra Energy’s rally of 22.6%.
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Rounding Up
NextEra Energy and Southern Company are strategically investing in their infrastructure to serve millions of customers more efficiently and reliably.
Per the above discussion, NextEra Energy is having a clear edge over Southern Company, given its better earnings estimates movement, higher ROIC, stronger price performance and elaborate capital expenditure.
Despite the fact that Southern Company is trading at a cheaper valuation than NextEra Energy, our choice is the latter, currently having a Zacks Rank #2 ( Buy), while the former has a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
