Reasons to Add Southwest Gas (SWX) to Your Portfolio Now

Southwest Gas Holdings, Inc. SWX is benefiting from focus on steady capital investments, expanding customer base and decoupled rate structures. More than 99% of its 2 million natural gas customers comprises residential and small commercial customers that ensure a steady flow of orders and earnings.

Let’s focus on the factors that make this Zacks Rank #2 (Buy) stock a strong investment pick. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estimates Revision

The Zacks Consensus Estimate for the company’s earnings for 2020 has moved up 0.8% to $3.74 per share in the past 90 days, while the same for 2021 has moved up 4.2% to $4.21 in the same time frame.

Surprise History & Long-Term Earnings Growth

Southwest Gas’ trailing two-quarter positive earnings surprise is 9.54%, on average.

Its long-term (three to five years) earnings growth is currently pegged at 6%.

Capital Investment Plan
 
For the 2020-2022 period, the company expects to make investments of $2.1 billion. Out of the planned investment, 51% will be used to increase the safety and reliability of its existing operations, and 29% will be allotted to new businesses and 20% to general plant. This investment will further strengthen operations and help the company serve the expanding customer base, which is expected to improve 1.6% from 2019 levels.

Growing Customer Base

outhwest Gas added 33,000 customers to the existing customer base during the 12 months ended Mar 31, 2020. Residential and small commercial customers represent more than 99% of the total customer base. The company earned around 85% of margin from residential and small commercial customers. A decoupled rate structure applies to most consumer classes and provides surety of earnings as it switches utility plant's profit margins to the number of customers serviced, rather than the total amount of power sold.

Debt/Capital & Dividend Yield

At first quarter-end, the company’s current debt to capital was 48.45% compared with the Zacks Utility – Gas Distribution industry’s 50.94%.

Currently, it has a dividend yield of 3.3%.

Price Movement

In the past month, the stock has gained 0.5% against the industry’s decline of 7.1%.

Other Stocks to Consider

Other top-ranked stocks in the same space include Sempra Energy SRE, Atmos Energy Corporation ATO and NewJersey Resources Corporation NJR, each carrying a Zacks Rank of 2.

The Zacks Consensus Estimate for 2020 earnings for Sempra Energy has moved up 4.6% in the past 90 days. The Zacks Consensus Estimate for fiscal 2020 earnings for Atmos Energy has been unchanged in the past 90 days, while the same for NewJersey Resources has moved up 0.5% in the same time period.

Long-term (three to five years) earnings growth for Sempra Energy, Atmos Energy and NewJersey Resources is currently projected at 7.18%, 7.2% and 6%, respectively.

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