Southwest Gas Corporation (SWX - Snapshot Report) offers investors solid growth and income at a reasonable price.
And estimates have been steadily rising after the company delivered a big beat for the fourth quarter. It is a Zacks #1 Rank (Strong Buy) stock.
Southwest Gas provides natural gas service to 1,859,000 customers in Arizona, Nevada, and California.
The company was founded in 1931 and has a market cap of $1.9 billion.
Fourth Quarter Results
Southwest Gas delivered better than expected fourth quarter results on February 28. Earnings per share came in at $1.19, crushing the Zacks Consensus Estimate of $0.99. It was a 21% increase over the same quarter last year.
Revenue rose 11% to $517.651 million, ahead of the consensus estimate of $475.0 million. This was driven by strength in the natural gas segment and its pipeline construction subsidiary.
Overall operating income increased 19% year-over-year as the gas operating margin expanded from 59.1% to 61.8% of gas operating revenues.
Analysts have been steadily raising their estimates higher for both 2012 and 2013 since the strong Q4 results, sending the stock to a Zacks #1 Rank (Strong Buy).
It's not often that you see a utility in the elite class of Zacks #1 Rank (Strong Buy) stocks, but the strong earnings momentum here is undeniable. Take a look at the 'Magnitude' of earnings estimates for Southwest Gas over the last 90 days:
The Zacks Consensus Estimate for 2012 is now $2.63, representing 11% growth over 2011 EPS. The 2013 consensus estimate is currently $2.75, corresponding with 5% annual growth.
Southwest Gas generates solid, stable cash flow which has allowed it to pay a steady dividend that yields 2.6%.
It has increased its dividend in each of the last 5 years.
The valuation picture looks reasonable for SWX. Shares trade at 15.7x 12-month forward earnings, a slight discount to the industry median of 16.2x and in-line with its 10-year median.
It also trades at just 1.6x book value, which is also slightly below its peers.
The Bottom Line
With rising estimates, solid growth projections, a 2.6% yield and reasonable valuation, Southwest Gas Corporation offers attractive total return potential.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.