I remain neutral/negative, as current valuation is demanding unless SWX rapidly closes the gap between earned and allowed ROE.
Introduction - Southwest's Centuri Problem
Southwest Gas (SWX) is a regulated Utilities company that for years had a non-regulated infrastructure and services company as its partner. Admittedly, this company, Centuri, built infra and offered services only in the
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Centuri's exit removes non-regulated volatility and excess debt, allowing SWX to be valued as a stable, regulated utility, reflected in its 1.5x book value premium.
SWX must close the gap between its 8.3% earned ROE and the allowed 9.7-10.2% ROE to sustain or justify the current valuation.
Faster-than-expected ROE normalization, favorable regulatory outcomes, or accelerated rate-base growth could justify or enhance SWX's valuation; slow progress or regulatory setbacks pose downside risk.
