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Southwest Gas cut at BofA, among utilities most exposed to high interest rates

Southwest Gas Holdings (NYSE:SWX) -5.6% in Wednesday's trading after Bank of America downgraded shares to Neutral from Buy with a Street-low $65 price target, slashed from $87, saying it does not see "a clear path to value creation" in an environment of higher interest rates.

BofA analyst Julien Dumoulin-Smith lowered his Southwest Gas (SWX) FY 2023 earnings estimate to $3.58/share, well below $4.61 analyst consensus, triggered by a full reset on multiple components of interest exposure and the company's weaker segment E&C guidance.

The analyst noted the increased interest stems from ~$1.4B in floating-rate term loans, and the Centuri segment operates with ~$1B of short-term debt, making Southwest Gas (SWX) among the most exposed stocks to higher interest rates.

Dumoulin-Smith acknowledged the downgrade comes amid an ongoing strategic evaluation, with a broader breakup or spinoff scenario becoming more probable; strong valuations for asset sales would drive upside while spinoffs with additional corporate costs and reduced balance sheet repayment would be negative, the analyst said.

Growth in Southwest Gas' (SWX) utility operations likely will continue due to a growing population in the company's service territory and a rising rate base, Power Hedge writes in an analysis posted recently on Seeking Alpha.