Southwest Gas Holdings Inc.’s SWX systematic investment plans to strengthen infrastructure and accretive acquisitions should boost its performance further. The company also gains from replacing and improving its old pipelines. Consistent customer growth also acts as a tailwind.

However, this Zacks Rank #3 (Hold) company faces risks related to its dependence on interstate pipelines for natural gas transportation.

Factors Favoring SWX

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 in 2024-2026. A substantial amount of the planned investment will be utilized for pipeline replacement activities, allowing it to efficiently serve its expanding customer base.

The company’s natural gas operations have a diversified and growing customer base in three states, namely Arizona, Nevada and California. Owing to strong economic growth across its service areas, the company installed 41,000 first-time meter sets in the 12 months ended on Sept. 30, 2024. The ongoing increase in the customer base should drive demand and performance for the company.

Southwest Gas anticipates 1.6% customer growth per year. 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 should drive its performance. The company expects rate base growth of 6.5-7.5% over the next three years.

Headwinds for SWX

Southwest Gas depends on its access to interstate pipelines’ transportation capacity, which, if unavailable, could impact its ability to meet customers’ requirements. It needs sufficient natural gas supplies and 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 asset 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.

SWX’s Price Performance

In the past year, shares of the company have risen 10.9% compared with the industry’s 14.3% growth.

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Stocks to Consider

Some better-ranked stocks from the same sector are New Jersey Resources NJR, sporting a Zacks Rank #1 (Strong Buy), and Atmos Energy Corporation ATO and WEC Energy Group WEC, both holding a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for NJR’s fiscal 2025 earnings per share (EPS) indicates year-over-year growth of 5.8%. The Zacks Consensus Estimate for fiscal 2025 sales indicates an increase of 2.5% from the previous year’s recorded figure.  

ATO’s long-term earnings growth rate is 7.01%. The Zacks Consensus Estimate for fiscal 2025 EPS indicates year-over-year growth of 5%.

WEC’s long-term earnings growth rate is 7.55%. The Zacks Consensus Estimate for 2025 EPS indicates an increase of 7.6% from the prior-year registered figure.  

 

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