Southwest Gas Holdings (SWX): A High-Conviction Utility Play for EPS Growth and Strategic Infrastructure Expansion

The Case for SWX: A Utility Sector Powerhouse with a Blueprint for Growth

When evaluating utility stocks, investors often prioritize stability, but Southwest Gas Holdings (SWX) has taken a bold step by combining the reliability of regulated utilities with the innovation of infrastructure modernization. With a 5.2% year-over-year earnings per share (EPS) increase in Q1 2025, a 6–8% compound annual growth rate (CAGR) guidance for rate base and net income through 2029, and a disciplined capital plan of $4.3 billion from 2025 to 2029, SWX is proving it can deliver both safety and upside. Let's break down why this stock deserves a high-conviction spot in your portfolio.

Strategic Infrastructure Investment: The Engine of Future Earnings

Southwest Gas Holdings' capital allocation strategy is a masterclass in utility investing. The company has committed $4.3 billion to infrastructure modernization from 2025 to 2029, with $880 million already deployed in 2025 alone. This includes pipeline replacements, system integrity upgrades, and smart metering expansions. These projects aren't just about safety—they're about creating a rate base that grows with the economy.

The Arizona rate case settlement, which unlocked an $80.2 million annual revenue increase, is a prime example. By securing a 9.84% allowed return on equity (ROE) on a 48.5% equity layer, SWX has created a predictable earnings stream while investing in infrastructure that customers and regulators demand. The pending system integrity mechanism—a $5 million incremental margin boost—could further stabilize cash flows by aligning cost recovery with performance metrics.

Customer Growth: A Quiet but Powerful Tailwind

While many utilities rely on population growth to expand their customer base, SWX has outperformed expectations. Over the past 12 months, the company added 40,000 new meter sets, translating to a 1.8% customer growth rate. This isn't just about more households—it's about incremental margin. Each new customer contributes to fixed costs, improving operating leverage.

The math is compelling: 1.8% customer growth, combined with rate relief in Arizona, Nevada, and California, drove a $5 million margin increase in Q1 2025. With 2 million customers across three states, SWX's ability to expand its footprint while maintaining service reliability is a rare combination in the sector.

Debt Management and Dividend Strength: The Unsung Heroes

Utility investors often overlook balance sheets, but SWX's liquidity position is a standout. As of March 31, 2025, the company held $406 million in cash and had over $1 billion in available liquidity. This flexibility allows it to fund capital projects without overleveraging while maintaining a robust 3.55% dividend yield—well above the S&P 500's 1.4% average.

The company's capital structure is also optimized for long-term stability. Its $4.3 billion plan is backed by a strong credit profile, with no significant debt maturities until 2028. This ensures SWX can continue to fund growth without sacrificing its investment-grade rating.

Regulatory Tailwinds and Strategic Separation: Mitigating Risk, Maximizing Value

Regulatory outcomes are a double-edged sword for utilities, but SWX has navigated them with precision. The Arizona rate case approval and the proposed system integrity mechanism (pending Q3 2025 decision) provide clear visibility for earnings. Meanwhile, the unopposed separation of its non-core subsidiary, Centuri, reduces execution risk and focuses management on core utility operations.

Yes, there are risks—potential delays in the Centuri separation and macroeconomic headwinds for natural gas demand could pressure margins. But SWX's diversified customer base, regulated asset model, and disciplined capital plan mitigate these concerns.

Why This Is a Long-Term Hold

SWX's Q1 2025 EPS of $1.65—up 16.2% from expectations—proves the company can surprise on the upside. Analysts project a 22% upside potential over the next 12–18 months, driven by its 6–8% CAGR guidance and a dividend yield that outpaces peers. For EPS-focused investors, the combination of regulatory tailwinds, customer growth, and infrastructure spending creates a virtuous cycle of earnings expansion.

Final Verdict: Buy and Hold
Southwest Gas Holdings isn't just a utility—it's a growth engine in a sector often criticized for being stagnant. By investing in infrastructure, expanding its customer base, and maintaining a fortress balance sheet, SWX is building a model that can outperform both its peers and the broader market. For investors seeking a high-conviction, long-term hold with a clear path to EPS growth, SWX checks all the boxes.