Southwest Gas Holdings, Inc.

SWX Details

Southwest Gas Holdings, Inc. (NYSE: SWX) is a company that buys, distributes, and transports natural gas for clients in Arizona, Nevada, and California. SWX has around 2.15 million residential, commercial, industrial, and other natural gas customers as of September 30, 2021, with 1.15 million in Arizona, 0.80 million in Nevada, and 0.20 million in California. Its business is divided into 1) Natural Gas Operations and 2) Utility Infrastructure Services. As of November 16, 2021, the company's market capitalization stood at USD 4.30 billion.

Latest News:

• Opening of New Facility: SWX announced its agreement on another renewable natural gas (RNG) project on November 10, 2021. In addition, SWX will play a crucial part in delivering RNG to market through its system with the grand launch of the Sunoma Renewable Natural Gas Project (Sunoma) at the Paloma Dairy in Gila Bend, Ariz.

9MFY21 Results:

• Growth in Revenues: SWX reported an increase of 8.86% in total operating revenues to USD 2.60 billion during 9MFY21 (ended September 30, 2021) compared to USD 2.38 billion during 9MFY20, attributable to customer growth.
• Surge in Net Income: SWX recorded a net income of USD 136.03 million vs. USD 133.95 million reported during 9MFY20.
• Leveraged Balance Sheet: As of September 30, 2021, the company had cash and cash equivalents of USD 186.69 million and total debt of USD 4.14 billion.

Key Risks:

• Customer Concentration Risk: In FY20, nine clients accounted for more than half of the income earned by utility infrastructure services. As a result, any changes in construction activity or failure to renew current contracts with these significant clients might severely impact the company's operations.

Outlook:

• FY21 Estimates: SWX stated in its Q3FY21 press release that it expects diluted EPS in the range of USD 3.25 – 3.40 in FY21, including the impacts of the planned Questar Pipelines acquisition, activism response, and partial-year results (and associated transaction and interest costs) in connection with the Riggs Distler acquisition.
• Excluding Charges Estimates: SWX also anticipated its diluted earnings per share for FY21, excluding the above charges, to be between USD 4.00-4.10. In addition, both acquisitions are projected to boost profitability in FY22.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SWX Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

SWX's stock price has surged 11.26% in the past nine months and is currently trading above the mid-point of its 52-week range of USD 57.00 to USD 73.54. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 50.24. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 76.19.

Considering the company's growth prospects, steady dividend yield, the opening of a new facility, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the closing price of USD 69.38, down 2.67% as of November 16, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.