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Southwest Gas (SWX) Rides on Investment, Expanding Customer Base
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Southwest Gas Holdings Inc.’s (SWX - Free Report) systematic investment plans to strengthen infrastructure and accretive acquisitions should further boost its performance. Consistent customer additions to the company's natural gas segment are improving its financials.
However, this Zacks Rank #3 (Hold) company faces risks related to its dependence on interstate pipelines for natural gas transportation.
Tailwinds
Southwest Gas strategically plans its investments 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. The capital expenditure is expected to be $830 million in 2024 to support customer growth, system improvements and pipe replacement programs.
SWX’s natural gas operations have a diversified and growing customer base in the three states, namely Arizona, Nevada and California. Owing to strong economic growth across its service areas, the company installed 40,000 first-time meter sets during the last twelve months (as of March 2024). The ongoing increase in Southwest Gas’ customer base should drive its performance.
Residential and small commercial customers account for more than 99% of the company’s total customer base. Strong demographics, continued expansion of its customer base and the decoupled rate structure in all three states where the company operates are set to further drive its performance.
Headwinds
Southwest Gas depends on its 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. A prolonged interruption or reduction of interstate pipeline service during the peak demand seasons might reduce its earnings.
The company does not own any significant assets other than the stock of its 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 23.1% compared with the industry’s 6% growth.
ATO’s long-term (three to five years) earnings growth rate is 7%. The Zacks Consensus Estimate for ATO’s fiscal 2024 EPS implies a year-over-year improvement of 9.2%.
MDU’s long-term earnings growth rate is 6%. The Zacks Consensus Estimate for MDU’s 2024 EPS implies a year-over-year increase of 3.3%.
The Zacks Consensus Estimate for UGI’s fiscal 2024 EPS indicates year-over-year growth of 2.8%. The company delivered an average earnings surprise of 19.1% in the last four quarters.
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Southwest Gas (SWX) Rides on Investment, Expanding Customer Base
Southwest Gas Holdings Inc.’s (SWX - Free Report) systematic investment plans to strengthen infrastructure and accretive acquisitions should further boost its performance. Consistent customer additions to the company's natural gas segment are improving its financials.
However, this Zacks Rank #3 (Hold) company faces risks related to its dependence on interstate pipelines for natural gas transportation.
Tailwinds
Southwest Gas strategically plans its investments 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. The capital expenditure is expected to be $830 million in 2024 to support customer growth, system improvements and pipe replacement programs.
SWX’s natural gas operations have a diversified and growing customer base in the three states, namely Arizona, Nevada and California. Owing to strong economic growth across its service areas, the company installed 40,000 first-time meter sets during the last twelve months (as of March 2024). The ongoing increase in Southwest Gas’ customer base should drive its performance.
Residential and small commercial customers account for more than 99% of the company’s total customer base. Strong demographics, continued expansion of its customer base and the decoupled rate structure in all three states where the company operates are set to further drive its performance.
Headwinds
Southwest Gas depends on its 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. A prolonged interruption or reduction of interstate pipeline service during the peak demand seasons might reduce its earnings.
The company does not own any significant assets other than the stock of its 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 23.1% compared with the industry’s 6% growth.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the same industry are Atmos Energy (ATO - Free Report) , MDU Resources Group (MDU - Free Report) and UGI Corporation (UGI - Free Report) , 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%. The Zacks Consensus Estimate for ATO’s fiscal 2024 EPS implies a year-over-year improvement of 9.2%.
MDU’s long-term earnings growth rate is 6%. The Zacks Consensus Estimate for MDU’s 2024 EPS implies a year-over-year increase of 3.3%.
The Zacks Consensus Estimate for UGI’s fiscal 2024 EPS indicates year-over-year growth of 2.8%. The company delivered an average earnings surprise of 19.1% in the last four quarters.