The Zacks Utility-Electric Power industry presents 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. Primarily domestic operations, 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 leading U.S. electric utilities, 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 8.63% and 8.77%, 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 6.74% and 7.04%, respectively. Long-term growth per share is pegged at 8.28%.
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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 interest rate was hiked in the past month by 25 basis points, taking the funds rate to 3.75% to 4%. Another round of rate hikes is expected before the end of 2026. The rising rates increase the capital financing expenses of the utilities.
NEE’s debt-to-capital currently stands at 60.99% compared with SO’s 64.09%.
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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 $81 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.
Return on Equity
Return on Equity (“ROE”) 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 ROE is 12.27% compared with SO’s 12.93% and the industry’s 11.48%.
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NEE & SO’s Dividend Yield
Dividends provide shareholders with a steady stream of income and serve as an important indicator of a company’s financial strength and stability. Consistent dividend payments often reflect healthy cash flows, stable earnings and a company's commitment to rewarding shareholders. Utility companies, supported by predictable revenues and relatively stable business models, are particularly known for their consistent dividend payouts, making them attractive to income-focused investors.
Currently, the dividend yield for NextEra Energy is 3.04%, while the same for Southern Company is 3.28%.
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Valuation
Southern Company currently appears to be trading at a marginal premium compared with NextEra Energy on a Price/Earnings Forward 12-month basis. (P/E- F12M).
NEE is currently trading at 19.01X, while SO is trading at 19.05X.
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Summing Up
NextEra Energy and Southern Company are strategically investing in their infrastructure to serve millions of customers more efficiently and reliably.
Despite Southern Company having a better ROE, from the above discussion it is evident NextEra Energy is having a clear edge over the former, given its better earnings estimates movement, cheaper valuation, lower percentage of debt usage and more elaborate capital expenditure.
Both companies are currently having 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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NextEra Energy, Inc. (NEE): Free Stock Analysis Report
Southern Company (The) (SO): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).