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Southwest Gas Holdings Inc: A Promising Prospect?
In this overview, we dive into the bullish perspective on Southwest Gas Holdings Inc (NYSE:SWX), courtesy of the detailed thesis by GoBills42 on ValueInvestorsClub. With the stock trading at $71.76 at the time of publication, now only slightly altered to $71.34 by January 3rd, this analysis offers a compelling case for prospective investors.
Understanding Southwest Gas Holdings Inc
Southwest Gas Holdings Inc is an esteemed utility firm operating in the expansive American Southwest. It focuses primarily on the procurement, distribution, and transportation of natural gas. The company adeptly splits its operations into two main segments: Natural Gas Distribution and Utility Infrastructure Services.
The Natural Gas Distribution division plays a crucial role in providing residential and small commercial customers with necessary services in Arizona and Nevada. This segment remarkably contributes to nearly half of Southwest Gas Holdings’ total revenue. In contrast, the Utility Infrastructure Services segment extends its reach by offering underground piping contractor services, thus generating the remaining half of the company’s revenue.
Growth Opportunities in the Southwest
The bull thesis articulates that Southwest Gas Holdings is poised to benefit substantially from population growth and economic expansion in its core markets, particularly Nevada. The city of Las Vegas, transitioning from a nightlife hub into a dynamic sports and entertainment destination, stands out as a key opportunity.
Las Vegas’s sports landscape is evolving, with teams such as the NFL’s Raiders and the NHL’s Golden Knights, alongside potential additions like a new NBA team. Consequently, the suburbs there continue to record population growth rates well above the national average. This robust demographic trend may offer further promising surprises in the near future.
Rate Case Filings and Management’s Strategy
The company’s active engagement in rate case filings across its operational markets reflects strategic foresight. While management anticipates a 6.5% to 7.5% increase in rates, GoBills42 speculates SWX could achieve rate hikes of 8.0% or more over the next two years. Historically, the management has tended to set expectations conservatively, so a higher rate increment seems plausible.
Moreover, the thesis emphasizes management’s tight grip on operations and maintenance costs. This efficiency is predicted to notably enhance profit margins and foster strong earnings per share (EPS) growth.
Recently, Southwest Gas Holdings executed the initial public offering (IPO) of its utility infrastructure services business, Centuri (CTRI). While SWX retains a significant portion of Centuri’s shares, it’s expected that post-lockup periods, SWX will gradually divest its stake. The proceeds from these divestments might be strategically utilized to repurchase SWX shares, further contributing to an improvement in EPS.
Projected Financial Outcomes
The author’s estimates portray a promising financial future. By the fiscal year 2026, Southwest Gas Holdings might report an EPS of $5.01, exceeding consensus expectations. Coupled with a target price-earnings (P/E) multiple of 25x, this propels the stock price target to $125, indicating a potential upside of 75% from the current level.
Conclusion: A Balanced View
Whilst Southwest Gas Holdings presents a compelling growth narrative, it’s essential for investors to assess alternative avenues too. Notably, certain AI stocks might promise superior returns over a shorter duration. For those interested, a different exploration might include the cheapest AI stock which trades at less than 5 times its earnings.
For those interested in exploring other robust investment opportunities, you might also consider the 8 Best Wide Moat Stocks to Buy Now or delve into the 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published on Insider Monkey.
