J.P. Morgan: Southwest Gas third-quarter earnings beat expectations; rates and pipeline project determine growth runway

Why did third-quarter earnings exceed expectations?

Southwest Gas reported adjusted earnings per share of 0.20 dollars for the third quarter of 2026, above JPMorgan's estimate of 0.15 dollars and the market consensus median of 0.14 dollars.
JPMorgan attributed the earnings beat to lower interest expense from a stronger balance sheet, favorable regulatory outcomes, continued recovery of infrastructure investment, and operational execution.
The company reaffirmed its 2026 adjusted EPS guidance of 4.17–4.32 dollars and maintained its target for compound annual EPS growth of 12%–14% from 2026 to 2030. JPMorgan maintained its Overweight rating.

Nevada's final decision adds approximately 48 million dollars in annual incremental revenue, with an authorized return on equity of 9.5%. New rates took effect in October 2026. The company has filed for reconsideration of approximately 50 million dollars in deferred certified plant assets.
California approved 32.6 million dollars in annual incremental revenue, with an authorized return on equity of 10%. Together, the two states add approximately 80 million dollars in annual revenue, improving the visibility of the company's earnings.
The company confirmed that it will file a replacement rate application in Nevada by early in the second quarter of 2027; final rules for SB 417 are expected by the end of 2026.

At the time the report was written, the Arizona Corporation Commission election remained closely contested, with two Democratic candidates temporarily in the lead. Even if both win, Republicans would still hold a 3-to-2 majority; however, Democrats could gain a majority by winning just one more seat among the three up for election in 2028.
Commission staff recommended 58 million dollars in annual incremental revenue, an authorized return on equity of 9.75%, and formula-based rates. Hearings are scheduled as planned for December 2026, with new rates targeted to take effect in April 2027.
JPMorgan is watching the durability of formula-based rates under a change in the commission's composition. The governorship of Nevada also shifting to the Democrats merits attention for its potential effect on the state's long-term regulatory tone.

The Great Basin 2028 pipeline project plans to file a construction permit application with the Federal Energy Regulatory Commission in the fourth quarter of 2026. The project has contracted demand of approximately 1 billion cubic feet per day, supporting an estimated capital expenditure of 2.3 billion dollars; after it is expected to enter service in the fourth quarter of 2028, it is expected to contribute 270 million–300 million dollars in incremental earnings annually.
The pipeline is designed for capacity of nearly 2 billion cubic feet per day, leaving room for a second phase of expansion. The company also has nonbinding expressions of interest for approximately 1.8 billion cubic feet per day, with service planned for 2029–2035, and is working to convert them into binding agreements.
Project capital expenditures are expected to be approximately 15%, 25%, and 60% in 2026, 2027, and 2028, respectively. Long-term guidance incorporating the project estimate is expected to be released with the five-year plan update in February 2027. The company said dividends could grow more substantially once key regulatory matters are resolved and the project is completed; JPMorgan believes the 4% increase announced in February 2026 may be a floor, with the potential depending on Arizona and Nevada formula-rate outcomes and the project's start of operations.