Southwest Gas’ Centuri Offering: A Strategic Move for Regulated Utility Investors

Southwest Gas Holdings’ recent secondary offering of Centuri Holdings (NYSE: CTRI) shares at $17.50 per share, coupled with a $50 million private placement to Carl Icahn’s entities, signals a pivotal moment for investors in the regulated utility sector. This move underscores strategic confidence in Centuri’s long-term prospects while offering a compelling entry point for income-focused investors. Below, we dissect the valuation implications, regulatory stability, and risks to determine whether this is a buy now—or a wait-and-see opportunity.

Valuation Implications: Is Centuri Priced for Growth?

The offering price of $17.50 per share contrasts sharply with Centuri’s current trading price of $15.25, suggesting a potential undervaluation. Analysts estimate a $19 average price target, implying a 24.6% upside from current levels. While Centuri’s trailing P/E ratio of 4,372.18 appears inflated due to a recent net loss, its forward P/E of 26.04 aligns with its improving profitability. A 11.65 EV/EBITDA multiple further supports its valuation, closely matching the median 11.1x of regulated utility peers in green energy sectors.

Strategic Positioning: A Play on Regulated Utility Resilience

Southwest Gas’ decision to divest a portion of its Centuri stake reflects a broader strategy to optimize its portfolio. Centuri’s $1.2 billion backlog and 20% rise in adjusted EBITDA to $24.2 million in Q1 2025 highlight its operational strength. The company’s focus on utility infrastructure services—critical for grid modernization and methane emission reductions—aligns with $7.8 billion in planned capital spending through 2029, ensuring steady revenue streams from regulated rate base growth.

Regulatory Stability: A Tailwind for Natural Gas Utilities

Natural gas utilities like Centuri benefit from rate-based growth and infrastructure investments. Essential Utilities’ recent rate awards—$89.6 million in Pennsylvania, North Carolina, and Ohio—and pending cases for $45 million in North Carolina exemplify the sector’s stability. Regulatory approvals for projects such as Georgia Power’s new gas plants and Texas’ $35 billion transmission upgrades underscore the industry’s priority in meeting rising energy demands, particularly from AI-driven data centers.

Risks: Debt, Policy Shifts, and Economic Uncertainty

Centuri’s debt/equity ratio of 1.84 poses a risk, though manageable given its $103.9 million free cash flow. Regulatory headwinds, such as EPA PFAS compliance costs or delayed rate approvals, could pressure margins. Additionally, economic downturns might suppress energy demand. However, the sector’s rate-hike mechanisms and dividend resilience (e.g., Essential Utilities’ 5.4% annualized dividend growth) mitigate these risks.

The Data-Driven Thesis: Buy Now or Wait?

• Price Attractiveness: Centuri trades at a discount to its offering price, offering a margin of safety.
• Peer Comparisons: Its EV/EBITDA is in line with regulated peers, while its backlog and growth targets exceed sector averages.
• Icahn’s Stamp of Approval: The private placement by Icahn Partners signals confidence in Centuri’s undervalued status.
• Regulatory Tailwinds: Infrastructure spending and rate adjustments ensure steady cash flows.

Conclusion: A Compelling Entry Point for Income Investors

Southwest Gas’ secondary offering presents a strategic inflection point for Centuri. With its robust backlog, disciplined capital allocation, and alignment with regulatory priorities, the company is positioned to deliver stable returns. While risks such as debt and policy shifts exist, the $15.25 price—below the offering price—offers a favorable risk/reward for investors seeking exposure to regulated utilities. For income-focused portfolios, Centuri’s potential to grow its rate base and benefit from infrastructure spending makes it a must-consider holding in 2025.