Southwest Gas (SWX) Gains From Investment Plans, Customer Growth
Southwest Gas Holdings Inc.’s SWX strategic investments to strengthen infrastructure and accretive acquisitions should further boost its performance. Consistent customer additions to the company's natural gas segment improve its financials.
However, this Zacks Rank #4 (Sell) company faces risks related to its dependence on interstate pipelines for natural gas transportation.
Tailwinds
Southwest Gas strategically plans its investment to meet the growing demand for safe, reliable and affordable energy solutions. The company expects a capital investment of $2.4 billion during 2024-2026.
SWX’s natural gas operations have a diversified and increasing customer base in three states, namely Arizona, Nevada and California. During 2023, it added nearly 40,000 new meter sets, at a 1.8% growth rate. Improvements in economic conditions, strong demographics, the continued expansion of its customer base, and the decoupled rate structure in all three states where the company operates are set to drive its performance.
The company makes strategic acquisitions to expand its operations. Net proceeds from the sale of shares of common stock under its Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension or improvement of pipeline systems and facilities located in and around the communities served by Southwest Gas.
Headwinds
Southwest Gas depends on access to interstate pipelines’ transportation capacity, which, if unavailable, could impact its ability to meet customers’ requirements. It needs to have both sufficient natural gas supplies and an interstate pipeline capacity to meet demand.
The company does not own any significant assets other than the stock of operating subsidiaries, thereby making it dependent on its units to meet its financial needs. Also, SWX’s ability to pay dividends depends on its units’ net income and cash flows.
Price Performance
In the past six months, shares of the company have risen 27.3% compared with the industry’s 9.6% growth.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the same sector are Atmos Energy ATO, MDU Resources Group MDU and NiSource Inc. NI, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ATO’s long-term (three to five years) earnings growth rate is 7.26%. The Zacks Consensus Estimate for ATO’s fiscal 2024 EPS implies a year-over-year improvement of 8%.
MDU’s long-term earnings growth rate is 6.3%. The Zacks Consensus Estimate for MDU’s 2024 EPS implies a year-over-year increase of 2%.
NiSource’s long-term earnings growth rate is 7.15%. The Zacks Consensus Estimate for NI’s 2024 EPS indicates year-over-year growth of 6.9%.
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