Rotten Tomato Stocks
No Result
View All Result
  • News
    Japan Games Maker Nintendo’s Profit Slips Amid Chips Crunch

    Japan Games Maker Nintendo’s Profit Slips Amid Chips Crunch

    Dow drops nearly 100 points on losses for Intel, Nike stocks

    Dow drops nearly 100 points on losses for Intel, Nike stocks

    Spanish Court: Amazon Violated Labor Law With Delivery App

    Spanish Court: Amazon Violated Labor Law With Delivery App

    Alphabet Posts Lower Q4 Profit Amid Ad Squeeze, Competition

    Alphabet Posts Lower Q4 Profit Amid Ad Squeeze, Competition

  • NYSE
    Chipotle stock falls after ‘tightening’ consumer spending leads to second earnings miss in 5 years

    Chipotle stock falls after ‘tightening’ consumer spending leads to second earnings miss in 5 years

    Duke Energy Corp. stock falls Tuesday, underperforms market

    Duke Energy Corp. stock falls Tuesday, underperforms market

    EnPro Industries, Inc. (NYSE:NPO) Stock Holdings Lowered by Congress Asset Management Co. MA

    EnPro Industries, Inc. (NYSE:NPO) Stock Holdings Lowered by Congress Asset Management Co. MA

    Holley Shares Fall 8.2% After Hours As CEO Retires, Preliminary 4Q Sales Decline

    Holley Shares Fall 8.2% After Hours As CEO Retires, Preliminary 4Q Sales Decline

  • NASDAQ
    Crocs (NASDAQ:CROX) Seems To Use Debt Quite Sensibly

    Crocs (NASDAQ:CROX) Seems To Use Debt Quite Sensibly

    Novavax Inc. stock falls Tuesday, underperforms market

    Novavax Inc. stock falls Tuesday, underperforms market

    El Pollo Loco (NASDAQ:LOCO) Stock Rating Lowered by StockNews.com

    El Pollo Loco (NASDAQ:LOCO) Stock Rating Lowered by StockNews.com

    ZoomInfo Posts 4Q Results, Shares Decline Almost 6% After Hours

    ZoomInfo Posts 4Q Results, Shares Decline Almost 6% After Hours

  • OTC
    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    Corus Entertainment 4Q Profit Falls

    Corus Entertainment 4Q Profit Falls

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

  • TSX
    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    Bitcoin Is Falling: Should You Buy the Dip?

    Bitcoin Is Falling: Should You Buy the Dip?

    CN Rail Stock Is So Undervalued That it’s Absurd

    CN Rail Stock Is So Undervalued That it’s Absurd

  • News
    Japan Games Maker Nintendo’s Profit Slips Amid Chips Crunch

    Japan Games Maker Nintendo’s Profit Slips Amid Chips Crunch

    Dow drops nearly 100 points on losses for Intel, Nike stocks

    Dow drops nearly 100 points on losses for Intel, Nike stocks

    Spanish Court: Amazon Violated Labor Law With Delivery App

    Spanish Court: Amazon Violated Labor Law With Delivery App

    Alphabet Posts Lower Q4 Profit Amid Ad Squeeze, Competition

    Alphabet Posts Lower Q4 Profit Amid Ad Squeeze, Competition

  • NYSE
    Chipotle stock falls after ‘tightening’ consumer spending leads to second earnings miss in 5 years

    Chipotle stock falls after ‘tightening’ consumer spending leads to second earnings miss in 5 years

    Duke Energy Corp. stock falls Tuesday, underperforms market

    Duke Energy Corp. stock falls Tuesday, underperforms market

    EnPro Industries, Inc. (NYSE:NPO) Stock Holdings Lowered by Congress Asset Management Co. MA

    EnPro Industries, Inc. (NYSE:NPO) Stock Holdings Lowered by Congress Asset Management Co. MA

    Holley Shares Fall 8.2% After Hours As CEO Retires, Preliminary 4Q Sales Decline

    Holley Shares Fall 8.2% After Hours As CEO Retires, Preliminary 4Q Sales Decline

  • NASDAQ
    Crocs (NASDAQ:CROX) Seems To Use Debt Quite Sensibly

    Crocs (NASDAQ:CROX) Seems To Use Debt Quite Sensibly

    Novavax Inc. stock falls Tuesday, underperforms market

    Novavax Inc. stock falls Tuesday, underperforms market

    El Pollo Loco (NASDAQ:LOCO) Stock Rating Lowered by StockNews.com

    El Pollo Loco (NASDAQ:LOCO) Stock Rating Lowered by StockNews.com

    ZoomInfo Posts 4Q Results, Shares Decline Almost 6% After Hours

    ZoomInfo Posts 4Q Results, Shares Decline Almost 6% After Hours

  • OTC
    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    Corus Entertainment 4Q Profit Falls

    Corus Entertainment 4Q Profit Falls

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

  • TSX
    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    Bitcoin Is Falling: Should You Buy the Dip?

    Bitcoin Is Falling: Should You Buy the Dip?

    CN Rail Stock Is So Undervalued That it’s Absurd

    CN Rail Stock Is So Undervalued That it’s Absurd

No Result
View All Result
Rotten Tomato Stocks
No Result
View All Result

Is Southern (NYSE:SO) Using Too Much Debt?

Editorial Staff by Editorial Staff
July 19, 2021
0
Is Southern (NYSE:SO) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, ‘The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that The Southern Company (NYSE:SO) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company’s use of debt, we first look at cash and debt together.

What Is Southern’s Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 Southern had US$51.4b of debt, an increase on US$47.8b, over one year. On the flip side, it has US$1.77b in cash leading to net debt of about US$49.6b.

debt-equity-history-analysis
NYSE:SO Debt to Equity History July 19th 2021

How Strong Is Southern’s Balance Sheet?

We can see from the most recent balance sheet that Southern had liabilities of US$11.6b falling due within a year, and liabilities of US$80.4b due beyond that. Offsetting this, it had US$1.77b in cash and US$3.03b in receivables that were due within 12 months. So its liabilities total US$87.2b more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company’s huge US$66.8b market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price.

In order to size up a company’s debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

With a net debt to EBITDA ratio of 5.2, it’s fair to say Southern does have a significant amount of debt. However, its interest coverage of 3.1 is reasonably strong, which is a good sign. Given the debt load, it’s hardly ideal that Southern’s EBIT was pretty flat over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Southern’s ability to maintain a healthy balance sheet going forward.

Finally, a business needs free cash flow to pay off debt; accounting profits just don’t cut it. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. During the last three years, Southern burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

To be frank both Southern’s net debt to EBITDA and its track record of converting EBIT to free cash flow make us rather uncomfortable with its debt levels. Having said that, its ability to grow its EBIT isn’t such a worry. We should also note that Electric Utilities industry companies like Southern commonly do use debt without problems. We’re quite clear that we consider Southern to be really rather risky, as a result of its balance sheet health. So we’re almost as wary of this stock as a hungry kitten is about falling into its owner’s fish pond: once bitten, twice shy, as they say. When analysing debt levels, the balance sheet is the obvious place to start. 

Related Posts

Chipotle stock falls after ‘tightening’ consumer spending leads to second earnings miss in 5 years
NYSE

Chipotle stock falls after ‘tightening’ consumer spending leads to second earnings miss in 5 years

February 7, 2023
Duke Energy Corp. stock falls Tuesday, underperforms market
NYSE

Duke Energy Corp. stock falls Tuesday, underperforms market

February 7, 2023
EnPro Industries, Inc. (NYSE:NPO) Stock Holdings Lowered by Congress Asset Management Co. MA
NYSE

EnPro Industries, Inc. (NYSE:NPO) Stock Holdings Lowered by Congress Asset Management Co. MA

February 7, 2023
Holley Shares Fall 8.2% After Hours As CEO Retires, Preliminary 4Q Sales Decline
NYSE

Holley Shares Fall 8.2% After Hours As CEO Retires, Preliminary 4Q Sales Decline

February 6, 2023
Load More
Next Post
We Think Corning (NYSE:GLW) Can Stay On Top Of Its Debt

We Think Corning (NYSE:GLW) Can Stay On Top Of Its Debt

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

I agree to the Terms & Conditions and Privacy Policy.

POPULAR NEWS

CNH Industrial (NYSE:CNHI) Use Of Debt Could Be Considered Risky

CNH Industrial (NYSE:CNHI) Use Of Debt Could Be Considered Risky

April 14, 2021
CN Rail Stock Is So Undervalued That it’s Absurd

CN Rail Stock Is So Undervalued That it’s Absurd

May 2, 2021
Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

September 14, 2021
US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

June 17, 2021
10 Warning Signs That Should Tell You “This Stock is in Trouble”

10 Warning Signs That Should Tell You “This Stock is in Trouble”

November 11, 2019

EDITOR'S PICK

California State Lawyer Suing Activision Blizzard Is Fired

California State Lawyer Suing Activision Blizzard Is Fired

April 14, 2022
Norwegian Cruise stock drops after wider-than-expected loss, revenue miss

Norwegian Cruise stock drops after wider-than-expected loss, revenue miss

May 6, 2021
We Think BWX Technologies (NYSE:BWXT) Is Taking Some Risk With Its Debt

We Think BWX Technologies (NYSE:BWXT) Is Taking Some Risk With Its Debt

January 16, 2022
China Eastern Airlines 3Q Loss Widens on Low Travel Demand

China Eastern Airlines 3Q Loss Widens on Low Travel Demand

November 1, 2021

Stay Updated

Get breaking news delivered straight into your inbox

Nothing in this publication should be considered as personalized financial advice. We are not licensed under securities laws to address your particular financial situation. No communication by our employees to you should be deemed as personalized financial advice. Please consult a licensed financial advisor before making any investment decision. This is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this report or email is not provided to any individual with a view toward their individual circumstances. Rotten Tomato stocks is a wholly-owned subsidiary of Grainne Capital Limited.
While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our newsletter is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between the any predictions and actual results. Always consult a licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.

Rotten Tomato Stocks cover the companies and markets that are declining, failing or headed for disaster. We help investors spot the down tends and recognize when something smells rotten.

RECENT POSTS

Japan Games Maker Nintendo’s Profit Slips Amid Chips Crunch

Chipotle stock falls after ‘tightening’ consumer spending leads to second earnings miss in 5 years

Duke Energy Corp. stock falls Tuesday, underperforms market

POPULAR POSTS

EnPro Industries, Inc. (NYSE:NPO) Stock Holdings Lowered by Congress Asset Management Co. MA

Crocs (NASDAQ:CROX) Seems To Use Debt Quite Sensibly

Novavax Inc. stock falls Tuesday, underperforms market

© Copyright 2023 RottenTomatoStocks. All Rights Reserved 

Disclaimer | Privacy Policy

No Result
View All Result
  • HOME
  • NEWS
  • NYSE
  • NASDAQ
  • OTC
  • TSX

© 2021 RottenTomatoStocks.com

error: Content is protected !!
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.