Southwest Gas stock rating upgraded by Jefferies on regulatory improvements

Investing.com - Jefferies upgraded Southwest Gas (NYSE:SWX) from Hold to Buy on Tuesday, while raising its price target to $82.00 from $74.00. The utility company, with a market capitalization of $5.24 billion, has maintained dividend payments for 55 consecutive years and currently carries a "GOOD" overall financial health rating according to InvestingPro.

The upgrade comes as Jefferies sees "a compelling and increasingly clear path to value" for the utility company, driven by regulatory improvements and progress in the CTRI sell-down process.

Jefferies highlighted the Arizona SIM approval and Nevada formula rates as key factors contributing to an expected 11.8% EPS CAGR through FY29, significantly higher than the 6.8% consensus estimate, suggesting 10% upside potential compared to current Street expectations.

The research firm also pointed to the Great Basin expansion as providing a $1.2 billion incremental capital expenditure opportunity for Southwest Gas.

According to Jefferies, Southwest Gas is "uniquely" positioned among gas utilities for outsized returns due to 10.3% rate base growth and improving earned ROEs.

In other recent news, Southwest Gas Holdings reported its first-quarter 2025 earnings, which showed a mixed financial performance. The company exceeded earnings per share (EPS) expectations with a reported $1.65, surpassing the anticipated $1.42. However, revenue fell short, coming in at $1.3 billion against a forecast of $1.53 billion. Southwest Gas Holdings also amended its revolving credit agreement to include a swingline sub-facility, offering more short-term borrowing options. This amendment was made in collaboration with Bank of America and other lenders, introducing a one-week interest period option.

Additionally, BofA Securities upgraded Southwest Gas Holdings’ stock from Underperform to Neutral, raising the price target to $74 due to recent strategic financial actions and a favorable regulatory environment in Arizona. The company has reduced its stake in Centuri Group, Inc. through a secondary offering and a private placement, generating approximately $225 million in net proceeds. These funds are expected to meet Southwest Gas’s equity needs through 2025-2026. The company also reaffirmed its 2025 net income guidance of $265-$275 million, projecting a 6-8% compound annual growth rate in its rate base.

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