On August 5, Southwest Gas Holdings (NYSE:SWX) reported second quarter results for the period ended June 30 and reaffirmed its full year 2026 guidance. Net income attributable to the company reached $42.1 million, a sharp turnaround from a $40.2 million loss in the same quarter of 2025. But the number that stood out was the Great Basin 2028 Expansion Project, where contracted demand has grown enough that management now expects capital costs of $2.3 billion instead of the $1.7 billion baked into current five year guidance.
The Pipeline Filling Up Fast
Southwest Gas’s growth story increasingly runs through Nevada. Binding precedent agreements for the Great Basin 2028 Expansion Project have grown to roughly 1 billion cubic feet per day of contracted demand, and the company has fielded another 1.8 billion cubic feet of expressions of interest for phases running from 2029 through 2035. Based on that demand, management now projects an annual margin of $270 million to $300 million once the pipeline is in service, on capital investment of about $2.3 billion.
Regulators have been cooperating too. California’s Public Utilities Commission approved the non-cost-of-capital pieces of Southwest Gas’s rate case, adding roughly $40 million of incremental annual revenue and triggering recognition of $9.7 million of previously deferred first-quarter income. Nevada regulators approved a Triennial Resource Plan with prudency pre-determinations for about $186 million of capital spending, and the company filed for a general rate case increase of roughly $74 million.
Arizona’s new System Integrity Mechanism, effective April 1 this year, lets Southwest Gas recover safety and reliability spending faster, up to a $50 million annual cap. The company put $520 million into its network in the first six months of 2026, including $115 million toward Great Basin, and closed the quarter with $270.5 million in cash and nearly $1 billion in available liquidity.
Where The Cracks Are Showing
Look past the headline swing to profit, and the picture gets murkier. The core natural gas distribution segment actually earned less this quarter, with its contribution to net income falling from $45.6 million a year earlier to $40.8 million, and its adjusted net income slipping from $33.7 million to $31 million. Depreciation and amortization rose $8.7 million, or 13%, as gas plant in service grew 7% year over year, a reminder that heavy pipeline spending shows up in expenses well before it shows up in rates.
Income tax expense climbed $16.2 million in the quarter, largely because a $12 million state tax benefit from the prior year did not repeat. Other income fell $9.4 million on lower interest income, smaller gains on company-owned life insurance policies, and higher charitable contributions.
The improvement investors are cheering, the swing from a $40.2 million loss to a $42.1 million profit, leaned heavily on a $47.7 million turnaround in the corporate and administrative segment tied to a tax comparison that will not repeat every quarter. And the California rate case is not fully resolved. The commission’s decision on cost of capital, the piece that determines Southwest Gas’s allowed return, is not due until August. The Great Basin project’s FERC certificate application has not even been filed yet.
What The Market Is Pricing In
Hedge fund ownership of Southwest Gas Holdings fell from 42 funds to 36 in the most recent quarter, pointing to some institutional trimming even as the growth story builds. Short interest sits at 4.16% of float, a modest level that suggests little organized skepticism toward the stock. Shares trade at a forward price-to-earnings ratio of 18.59 as of September 4, a multiple that already prices in a good share of the earnings growth management is promising.
The Real Test Comes Later
Southwest Gas Holdings ended the quarter with reaffirmed guidance and a pipeline project that keeps getting bigger, but the reported profit swing owed more to a one-time tax comparison than to gas distribution actually earning more. The bulls have real evidence: nearly 1 billion cubic feet of contracted demand, three states moving rate cases forward, and a $2.3 billion project with expanding margin potential once built. The bears can point to a shrinking core utility profit this quarter and a California decision that has not yet been finalized.
READ NEXT: 10 Best Future Stocks to Buy Under $10 and 12 Best Performing Semiconductor Stocks to Invest In.
Hedge Fund Resource Center