SWX Stock Rides on Strategic Investments and Expanding Customer Base
Southwest Gas Holdings, Inc. SWX is a regulated utility company that provides natural gas services and operates a pipeline transmission system. Its strategic investments and diverse and growing customer base will further boost its performance.
However, this Zacks Rank #3 (Hold) company faces risks related to the high dependence on interstate pipelines’ transportation capacity.
SWX’s Tailwinds
Southwest Gas plans to invest $2.4 billion during the 2024-2026 period to meet the growing demand for safe, reliable and affordable energy solutions. It expects to invest $830 million in 2024 to support customer growth, system improvements and pipe replacement programs.
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, installed 40,000 first-time meter sets in the 12 months that ended June 30, 2024. The expanding customer base will drive demand and performance.
Residential and small commercial customers account for more than 99% of SWX’s total customer base. It expects 1.6% growth in customers per year. Improvements in economic conditions, strong demographics, the continued expansion of its customer base and the decoupled rate structure in the three states where the company operates are going to boost its performance.
Headwinds for SWX
SWX depends on 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 peak demand season could reduce cash flow and earnings.
Southwest Gas does not own any significant assets other than the stock of operating subsidiaries, thus making it dependent on its units to meet its financial needs.
SWX Stock’s Price Performance
Shares of SWX have gained 21.5% in the past year compared with the industry’s 16.7% growth.
Image Source: Zacks Investment Research
SWX’s Peer Prospects
Some better-ranked stocks in the sector are National Fuel Gas Company NFG, UGI Corporation UGI and DTE Energy Company DTE. Each of these stocks currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
National Fuel Gas has invested $2.7 billion in midstream operations since 2010 to expand and modernize its pipeline infrastructure to gain access to Appalachian production. The company has more than $500 million in investment planned over the next five years for the modernization of pipeline transportation and distribution systems.
UGI invested $1.1 billion in fiscal 2023 to strengthen its operation. It invested $495 million of capital in regulated utility businesses in the same period. The company also expects capital expenditure to be in the range of $3.7-$4.1 billion for fiscal 2024-2027.
DTE Energy aims to invest $25 billion over the next five years to maintain and upgrade the reliability of its electric and natural gas utility systems. DTE Electric currently expects to make capital investments worth $20 billion over the 2024-2028 period. DTE Gas’ total capital investments over the same period are estimated to be $3.7 billion.
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