BofA Upgrades Southwest Gas After Share Issuance

Southwest Gas Holdings Inc SWX has announced the issuance of 5.5 million shares of common stock at a public offering price of $74 per share plus a 30-day underwriters’ option to purchase another 825,000 shares or around $468 million in gross proceeds, according to BofA Securities.

The Southwest Gas Holdings Analyst: Julien Dumoulin-Smith upgraded the rating for Southwest Gas Holdings from Neutral to Buy, while keeping the price target at $88.

The Southwest Gas Holdings Thesis: The public offering “satisfies the equity portion of the permanent financing of the Questar acquisition” and is lower than the initial expectation of $900 million to $1 billion, Dumoulin-Smith said in the upgrade note.

“We believe the accretion of the 2021 acquisitions is underappreciated in the current share price and see the discount to the group as too steep (3x on updated numbers or nearly 17%),” the analyst wrote.

“We see the potential for upside on our valuation with the spin of the Infrastructure Services business in 1Q23,” he added.

SWX Price Action: Shares of Southwest Gas Holdings had risen by 2.3% to $80.45 at the time of publication Wednesday.