We came across a long thesis on Southwest Gas Holdings Inc (NYSE:SWX) on ValueInvestorsClub by GoBills42. In this article we will summarize the bulls’ thesis on SWX. The company’s shares were trading at $71.76 when this thesis was published, vs. closing price of $71.34 on Jan 3rd.
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Southwest Gas Holdings Inc (NYSE:SWX) is a utility company specializing in the procurement, distribution, and transportation of natural gas across the American Southwest, with operations divided into two primary segments: Natural Gas Distribution and Utility Infrastructure Services. The Natural Gas Distribution segment focuses on serving residential and small commercial customers in Arizona and Nevada, contributing about half of the company’s revenue, while the Utility Infrastructure Services segment generates the remaining revenue through underground piping contractor services.
The bull thesis is centered on the idea that Southwest Gas Holdings Inc (NYSE:SWX) is set to be a beneficiary of population growth and economic expansion in its core market. The key state appears to be Nevada, and especially the city of Las Vegas, which the author believes will transition from a pure nightlife city into a sports and entertainment destination, following the addition of the Raiders team, ice hockey Golden Knights team and an expected new NBA team. Consequently, Las Vegas suburbs continue to post population growth well above the national average, which might further surprise to the upside. Besides that, the company is pursuing significant rate case filings across its markets; while management guides toward a 6.5% to 7.5% increase in rates, the author believes that SWX might post an increase of 8.0% and above within the next 2 years, especially considering that management has a history of setting the bar too low. Third, the author argues that management’s grip on operations and maintenance costs will yield to significant margin improvements that will support strong EPS growth.
Southwest Gas Holdings Inc (NYSE:SWX) also executed the IPO of its utility infrastructure services business Centuri (CTRI). While SWX still owns the majority of the stock, it is expected that once lockup periods expire, SWX will slowly divest its stake and will use the proceeds to repurchase its own shares, which will provide some additional improvement to EPS growth. All in all, the author expects that SWX will post FY2026 EPS of $5.01, above the consensus, which coupled with a 25x target P/E multiple, yields a target stock price of $125, or 75% upside from the current market price.
While we acknowledge the potential of SWX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SWX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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