Institutional investors are The Southern Company's (NYSE:SO) biggest bettors and were rewarded after last week's US$4.2b market cap gain
Key Insights
Given the large stake in the stock by institutions, Southern's stock price might be vulnerable to their trading decisions
46% of the business is held by the top 25 shareholders
To get a sense of who is truly in control of The Southern Company (NYSE:SO), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 64% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).
And things are looking up for institutional investors after the company gained US$4.2b in market cap last week. One-year return to shareholders is currently 13% and last week’s gain was the icing on the cake.
In the chart below, we zoom in on the different ownership groups of Southern.
View our latest analysis for Southern
What Does The Institutional Ownership Tell Us About Southern?
Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.
Southern already has institutions on the share registry. Indeed, they own a respectable stake in the company. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Southern's earnings history below. Of course, the future is what really matters.
Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. Hedge funds don't have many shares in Southern. The Vanguard Group, Inc. is currently the largest shareholder, with 9.1% of shares outstanding. For context, the second largest shareholder holds about 7.2% of the shares outstanding, followed by an ownership of 5.7% by the third-largest shareholder.
Our studies suggest that the top 25 shareholders collectively control less than half of the company's shares, meaning that the company's shares are widely disseminated and there is no dominant shareholder.
Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.
Insider Ownership Of Southern
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.
I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
Our most recent data indicates that insiders own less than 1% of The Southern Company. It is a very large company, so it would be surprising to see insiders own a large proportion of the company. Though their holding amounts to less than 1%, we can see that board members collectively own US$180m worth of shares (at current prices). In this sort of situation, it can be more interesting to see if those insiders have been buying or selling.
General Public Ownership
With a 36% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Southern. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.
Next Steps:
I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Southern you should know about.
If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
