A Look At Southwest Gas Holdings (SWX) Valuation After Carl Icahn Fully Exits His Position

Carl Icahn’s decision to completely exit Southwest Gas Holdings (SWX) removes a high profile activist shareholder from the stock, prompting investors to reassess the company’s governance, capital allocation and long term direction.

See our latest analysis for Southwest Gas Holdings.

Icahn’s exit comes after a period where the stock’s momentum has cooled a little, with a 30 day share price return of a 2.25% decline and a 7 day share price return that is close to flat. This contrasts with the 1 year total shareholder return of 28.42% and 3 year total shareholder return of 70.16%, which signal that longer term holders have seen stronger gains.

If Icahn moving on has you thinking about where else capital could work hard, this could be a good moment to scan for other utility linked infrastructure plays in the grid space using our 35 power grid technology and infrastructure stocks

With Icahn gone, Southwest Gas is trading at $88.94, with a roughly 12% gap to the average analyst price target of $100 and guidance pointing to full year EPS of $4.17 to $4.32. Is this a genuine mispricing, or are markets already baking in that outlook?

Most Popular Narrative: 8.6% Undervalued

With Southwest Gas Holdings last closing at $88.94 against a narrative fair value around $97.29, the current setup frames a modest valuation gap that hinges on how future growth and capital spending play out.

Accelerated infrastructure investment opportunities, exemplified by the Great Basin pipeline expansion project with potential $1.2 to $1.6 billion in new capital expenditures, are expected to drive significant rate base growth, supporting higher future regulated revenue and earnings.

Read the complete narrative.

Want to see what sits behind that projected rate base build out and earnings path? The narrative leans heavily on compounding revenue, richer margins and a much higher future earnings multiple to justify today’s fair value call, and the full breakdown shows how those ingredients are expected to work together over time.

Result: Fair Value of $97.29 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, faster building electrification and tighter environmental rules, as well as any stumbles on large projects like Great Basin, could quickly challenge that 8.6% undervaluation story.

Find out about the key risks to this Southwest Gas Holdings narrative.

Another Angle On Valuation

While the narrative model points to an 8.6% undervaluation around $97.29, the current P/E of 26.9x looks expensive compared with the global gas utilities average of 14.4x, the peer average of 18.1x, and a fair ratio of 22.8x. This raises the question of how much optimism is already in the price.

See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

With sentiment mixed across Icahn’s exit, valuation signals and project ambitions, this is a good time to look at the numbers yourself and decide what really matters for your portfolio, starting with a closer look at the 1 key reward and 2 important warning signs.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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