Southern upgrade leads utilities ratings shuffle at Evercore ISI
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Southern Co. (SO
-0.2%) is upgraded to In-Line from Underperform with a $66 price target at Evercore ISI, which believes investor focus should begin to shift to the company's long-term earnings growth potential, one of several ratings changes the firm issues for utility stocks.

Analyst Durgesh Chopra says Evercore's underperform thesis had been based on Vogtle-related delays and cost increases, and while some minor project delays are still possible, "the chances of major delays and material cost overruns is low and as Vogtle Unit 3 gets closer to completion, we think the investor focus shifts to long term earnings growth of the business which is projected to grow 5%-7% with upside."
More generally, utilities (NYSEARCA:XLU) offer attractive relative valuation, but inflation and rising yields likely will remain headwinds in 2022 as utilities tend to underperform the market in periods of high inflation, Chopra says.
But patience will be rewarded in the long run, Chopra says, viewing accelerated decarbonization along with federal and state policy support as major tailwinds to sector growth.
Currently preferring "value over quality," Evercore views American Electric Power (AEP
-0.2%) as its top pick among regulated utilities and AES Corp. (AES
-1.9%) as its favorite among diversified names, while Consolidated Edison (ED
-0.2%) is the firm's only utility meriting an Underperform rating.
The firm upgrades to Outperform from In-Line: NiSource (NI
+0.4%) in anticipation of an extension or expansion of the current target of 7%-9% EPS growth compound annual growth rate through 2024; Public Service Enterprise Group (PEG
+0.6%) amid growing appreciation for nuclear assets and a cleaner portfolio; and Xcel Energy (XEL
+0.7%) on valuation after a dismal 2021.
On the flip side, Evercore downgrades Evergy (EVRG
-1.1%) and OGE Energy (OGE
-0.2%) to In-Line from Outperform after strong showings in 2021.
Also citing a much lower likelihood of further delays and cost overruns for the Vogtle nuclear project, Mizuho analysts also recently upgraded Southern Co. shares.