This Natural Gas Distributor Is Growing: Southwest Gas Corporation (SWX)

Southwest Gas Corporation (NYSE:SWX) is scheduled to report earnings on Feb. 28. In addition to its gas business, the company derives revenue from construction services. The company likely earned about $1.23 in the December quarter, versus $1.19 in the prior-year quarter. What differentiates SWX is its construction business, essentially a piping contracting unit serving utilities.

Southwest Gas Corporation (NYSE:SWX)Natural Gas Margins Improving

Although natural gas prices are still weak, SWX is generating improved profitability in its transportation and distribution operation. The bulk of the increase is stemming from rate relief in Arizona, one of SWX’s main markets, as well as probably from the November rate hike in Nevada. Additionally, SWX is adding to its customer base, further supporting the bottom line.

Construction Unit Promising

Southwest Gas Corporation (NYSE:SWX)’s contracting business is experiencing top-line (revenue) gains without income expansion. Demand for replacement projects has been lifting revenues to roughly 47% of the company total. But, expenses have more than offset the impact, and it is uncertain if the margin erosion will subside in the near term. On that note, if cost containment occurs, profit growth could well accelerate.

The Stock

SWX shares may have appeal with an expense cut in its Construction unit. A look at the upcoming 10-Q should provide some insight into what the prospects might be for that division.

Here’s another gas stock that may be of interest, Suburban Propane Partners LP (NYSE:SPH):

Suburban Propane’s core operation is the sale of propane, and volumes sold more than doubled year over year in the December quarter thanks to the acquisition of Inergy Propane. In the key March quarter, SPH may well post share net of around $2.56, up $1.10 from the prior year, despite a large share issuance related to the purchase.

With the Inergy buyout, Suburban approximately doubled its customer base, and the New Jersey-based entity expanded into eleven new states. Propane sales fluctuate on weather and the prices of substitutes like natural gas and electricity. Notably, conditions have not been ideal of late, resulting in lower prices for propane. Otherwise, forecasts would be even greater.

SPH shares can be viewed primarily as an income stock. It, in fact, recently boosted its payout to a $3.50 annual level, reflecting an 8.3% yield. For capital appreciation, the stock’s elevated price appears to minimize its upside at this time. In all, I suggest only those seeking high-yield stocks consider SPH at this time.

This leads me to a natural gas stock also offering a generous yield, in this instance 3.7%. The company is Atmos Energy Corporation (NYSE:ATO)

Atmos’ share earnings are apt to remain rather stable. Specifically, management is targeting earnings of $2.40 to $2.50 a share this year, as compared with last year’s $2.42. It is expanding the capacity of its regulated pipeline assets and believes it can grow earnings 6% to 8% annually out to 2016. For a company that acts like a utility, this would represent meaningful bottom-line improvements.

Given that outlook, and a consistently rising dividend, ATO shares might reward investors over the 3- to 5-year span.

In sum, shares of SWX hold appreciation potential with the caveat of a turnaround in its construction division. SPH stock is for those wanting a sizable stream of income. Finally, ATO is a natural gas utility that may have some long-term price upside as well.

The article This Natural Gas Distributor Is Growing originally appeared on Fool.com and is written by Damon Churchwell.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!