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Southwest Gas Corporation

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Southwest Gas Corporation (SWX - Free 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.

Company Description

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.

Estimates Rising

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:

SWX: Southwest Gas Corporation

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.

Solid Dividend

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.

Reasonable Valuation

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.

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