BofA raises Southwest Gas stock rating, target to $74

On Monday, BofA Securities adjusted its stance on Southwest Gas Holdings (NYSE:SWX), upgrading the stock from Underperform to Neutral and increasing the price target to $74 from $69. The revision comes as a response to the company’s recent actions aimed at addressing concerns related to its pending separation from Centuri Group, Inc. (CTRI), and a more favorable view of the regulatory environment in Arizona. Trading at $70.81 with a market capitalization of $5.09 billion, Southwest Gas maintains a FAIR financial health score according to InvestingPro analysis, which offers comprehensive insights through its Pro Research Report covering 1,400+ US equities.

Southwest Gas recently made moves to monetize a portion of its stake in Centuri, conducting a secondary offering of 9 million shares. This offering, along with a $50 million private placement of Centuri shares to Icahn Investors, has reduced Southwest Gas’s ownership in Centuri to approximately 66%, contingent on the exercise of a 1.35 million share greenshoe option. Previously, Southwest Gas held around an 80% stake in the company. The company’s current P/E ratio stands at 22.85x, which InvestingPro analysis indicates is relatively high compared to near-term earnings growth prospects.

The transactions have generated roughly $225 million in net proceeds for Southwest Gas. According to BofA Securities, this influx of funds should cover the equity needs for the company through the years 2025 to 2026, prompting a revision of their financial models for Southwest Gas to no longer include additional equity requirements. This funding comes at a crucial time, as InvestingPro data shows the company’s short-term obligations currently exceed its liquid assets, with a current ratio of 0.79. Despite these challenges, the company has maintained dividend payments for an impressive 55 consecutive years, demonstrating strong commitment to shareholder returns.

The analyst at BofA Securities cited the initial steps taken by Southwest Gas to alleviate the overhang from the pending separation from Centuri as a key factor in the upgraded rating. The analyst also noted an improving perspective on the regulatory framework in Arizona, which is likely to impact Southwest Gas’s operations within the state.

The company’s strategic financial maneuvering has been recognized as a positive development, leading to the updated rating and price target. The actions taken by Southwest Gas are seen as a balanced approach to managing risk and reward, reflecting the firm’s reassessment of the company’s investment outlook.

In other recent news, Southwest Gas Holdings reported its first-quarter 2025 financial results, showcasing a mixed performance. The company exceeded earnings per share (EPS) expectations with a reported EPS of $1.65, surpassing the anticipated $1.42. However, revenue fell short of forecasts, coming in at $1.3 billion compared to the expected $1.53 billion. Despite this revenue miss, Southwest Gas Holdings reaffirmed its 2025 net income guidance of $265-$275 million. The company also highlighted a 5.2% year-over-year increase in net income, supported by a $38.9 million rise in utility operating margin. Analysts noted the company’s strong financial position, with over $400 million in cash and more than $1 billion in total liquidity. In regulatory developments, Southwest Gas Holdings made progress in its Arizona and Great Basin rate cases, which are expected to support future growth. The company plans to invest $4.3 billion over the next five years, focusing on safety, reliability, and economic development.

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