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Southwest Gas (SWX) to Acquire Dominion's Questar Pipeline

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Southwest Gas Holdings, Inc. (SWX - Free Report) announced that it has entered into a definitive agreement to acquire Dominion Energy’s (D - Free Report) Questar Pipelines and certain associated affiliates for $1.545 billion in cash. Southwest Gas will also assume $430 million of Questar Pipelines' debt.

This acquisition is expected to close by Dec 31, 2021, subject to necessary regulatory approvals, and be accretive to Southwest Gas’ earnings from 2022. The acquisition of Questar will add 2,160 miles of highly contracted, FERC-regulated interstate natural gas pipelines providing transportation and underground storage services in Utah, Wyoming and Colorado to Southwest Gas’ existing portfolio.

Post closure of the acquisition, Questar Pipelines will operate as a standalone subsidiary of Southwest Gas.

How Southwest Gas Will Benefit From This Deal

Questar Pipelines' exceptional re-contracting record, high-quality, long-standing customer base and focus on safety measures make it an attractive addition to Southwest Gas’ regulated business platform. The Questar Pipeline assets having consistent rate-regulated cash flow will support dividend growth and increase Southwest Gas’ business flexibility for funding its capital need.

This acquisition will act as a tailwind for Southwest Gas’ energy transition strategy and expand its natural gas pipeline operation. This acquisition will enable the company to provide affordable, low-carbon energy to customers while positioning it to transport renewable natural gas, responsibly sourced gas and eventually, hydrogen and carbon dioxide.

Pipelines Will Play a Role in Emission Reduction

Natural Gas’ clean-burning nature and wide availability across the United States are driving its demand. Temporary obstacles like the outbreak of COVID-19 or price increases should not dampen the long-term prospects of natural gas.

Hence, the distribution pipeline network should continue to play a major role in transporting natural gas to customers in all parts of the United States. The U.S. Energy Information Administration expects U.S. natural gas production to increase from 92.7 billion cubic feet per day (Bcf/d) in the second half of 2021 to 95.4 Bcf/d in 2022. The demand for natural gas will continue to increase with the opening up of industrial and commercial activities. Natural gas pipelines will play a pivotal role in the utilities’ gradual transition toward clean energy by properly transporting the gas.

Price Performance

Southwest Gas’ shares have outperformed the industry in the year-to-date period.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank & Key Picks

Southwest Gas currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same industry are MDU Resources Group (MDU - Free Report) and ONE Gas Inc. (OGS - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MDU Resources and ONE Gas’ long-term (three to five years) earnings growth is currently pegged at 6.94% and 5%, respectively.

The Zacks Consensus Estimate for 2021 earnings of MDU Resources and ONE Gas has moved up 1.9% and 0.3%, respectively, in the past 90 days.