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An Earnings Miss For Southwest Gas Is An Opportunity For Investors

Jul. 05, 2017 8:30 AM ETSouthwest Gas Holdings, Inc. (SWX)
Tristan R. Brown profile picture
Tristan R. Brown


  • Southwest Gas saw its share price dented in recent months following a sizable Q1 earnings miss and a disappointing Arizona rate case decision.
  • The company's long-term outlook has brightened considerably since early 2016 on a strengthening service area, however, which will allow it to maintain its track records of earnings and dividend growth.
  • Investors seeking capital preservation and dividend income should consider the opportunity presented by the recent downturn of the company's share price.

Southwest Gas (NYSE:SWX) is a natural gas transportation and distribution company that operates in Arizona, Nevada, and Eastern California. The company operates two segments: natural gas and construction. The natural gas segment provides regulated services to nearly 2 million customers, 99% of which are residential and small commercial entities, across its service area. The second segment, named Centuri, is a construction entity that operates within the utilities and pipeline areas in the U.S. and Canada. The company's natural gas operations provide the large majority of its consolidated earnings (81% last year), while its regulated operations in Arizona are in turn responsible for the majority of that segment's gross margin (54% last year). (For more details on its operations, see my previous article from 2015.)

Southwest's share price rallied strongly beginning in October of last year, rising by 35% over the subsequent six months (see figure). A Q1 earnings miss and disappointing rate case decision have caused the share price to retrace much of its earlier gain, and it has shed 16% of its value from its March peak. This reversal has dinged the share price's record of outperformance: whereas it has solidly beat the S&P 500 Utilities Index over the last 10-, 5-, and 3-year periods (boosted by a 10.9% dividend CAGR over the last five years), it has slightly underperformed the index for the 12-month period ending May 31. This article takes a deeper look at Southwest Gas's operating position to evaluate it as a potential long investment opportunity.

ChartSWX data by YCharts


Two years ago, I was relatively bearish on Southwest Gas, concluding that "continued signs of [economic] weakness in its service area threaten to dampen future earnings growth for the company." In 2015 I was worried by the fact that Arizona and especially Nevada had much higher unemployment rates than the U.S. average, which

This article was written by

Tristan R. Brown profile picture
My articles do not represent investment advice. Readers should perform their due diligence before investing in any security or fund that is mentioned by my articles.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SWX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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