Southwest Gas Holdings, Inc.

SWX Details

Southwest Gas Holdings, Inc. (NYSE: SWX) is a utility company that purchases, distributes, and transports natural gas to residential, commercial, and industrial customers across Arizona, Nevada, and California. Its operating segments are 1) Natural Gas Operations, engaged in distribution and transportation of natural gas, and 2) Utility Infrastructure Services, which comprises the operation of the company's wholly-owned subsidiary Centuri Group Inc. (Centuri), an infrastructure service enterprise providing a wide range of gas and electric solutions. As of September 30, 2021, the company's market capitalization stood at USD 4.01 billion.

Robust Dividend Yield: On September 22, 2021, SWX declared a quarterly dividend of USD 0.595 per common share, payable on December 01, 2021, to shareholders of record on November 15, 2021, equating to USD 2.38 per share on an annual basis.

Achieving Inorganic Growth via Horizontal Acquisitions: On August 27, 2021, Centuri acquired Riggs Distler & Company, Inc., and its affiliates, a turnkey union construction services company operating in Northeast and Mid-Atlantic regions. The acquisition provides Centuri with a robust union electric platform enabling new service offerings to combination gas and electric utility consumers and regional expansion with virtually no overlap in the existing customer base.

Q2FY21 Results: The company reported a YoY growth of 8.47% in total operating revenues to USD 821.42 million in Q2FY21 (ended June 30, 2021) compared to USD 757.25 million in Q2FY20. The utility infrastructure services revenues, which accounted for 64.35% of the total revenue in Q2FY21, reported a YoY growth of 6.83%, whereas the gas operating revenues improved by 11.57% YoY. Net income for Q2FY21 reduced to USD 25.12 million from USD 37.97 million in Q2FY20. As of June 30, 2021, the company had cash & cash equivalents of USD 47.57 million and total debt of USD 3.12 billion.

Key Risks: Only nine customers accounted for half of the company's utility infrastructure services revenue in FY20. As a result, any alterations in construction work or non-renewal of existing contracts with these key customers could negatively impact the company's operations.

Outlook: In its Q2FY21 earnings release, SWX stated that it expects to clock EPS in the range of USD 4.00 – 4.20 in FY21.

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 decreased 2.0% in the past six months and is currently trading at the mid-point of its 52-week range of USD 57.00 to USD 75.00. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 40.22. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 76.15. Considering the slight correction in the stock price, robust dividend yield, recent acquisitions, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the closing price of USD 66.88, down 1.55% as of September 30, 2021.

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

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