SWX or CPK: Which Is a Better Utility Gas Distribution Stock?

Natural gas distribution pipelines play a vital role in delivering natural gas from intrastate and interstate transmission pipelines to consumers through small-diameter pipelines. The natural gas network in the United States has nearly 3 million mainline and other pipelines. The country has witnessed a rise in domestic natural gas production due to increased exports and public awareness of lower emissions. The need for additional distribution pipes is expected to increase as demand for natural gas from various consumer segments rises.

The increasing consumption of natural gas in the United States and abroad is driving demand for distribution pipelines. As a result of the growing demand for clean, burning natural gas, natural gas distribution companies will have additional opportunities. In general, the demand for natural gas rises in the summer to generate power for air conditioning and in the winter to heat spaces.

The natural gas industry also needs a steady stream of funding to cater to aging infrastructure and the replacement and maintenance of an extensive network of pipelines. Since September 2024, the Fed has lowered its federal fund rate by one percentage point. In 2025, more interest rate reductions are anticipated. Capital-intensive utilities should have improved chances as a result of the rate drop. This is because their margins and profitability will rise as a result of lower capital servicing expenses.

Utility service providers generally enjoy consistent revenue growth and profitability. Due to their ability to generate cash flows and manage returns, utilities can enhance shareholder value through regular dividend payments.

Per a U.S. Energy Information Administration (“EIA”) report, natural gas consumption for electricity generation is expected to contribute nearly 40% in 2025 as well as in 2026. The EIA also expects U.S. dry natural gas production to increase 2% in 2025 as well as in 2026. It estimates dry natural gas production to rise to 105 billion cubic feet per day (Bcf/d) in the second quarter of 2025 (3 Bcf/d more than the year-ago level).

In this article, we run a comparative analysis on two Utility - Gas Distribution companies — Southwest Gas SWX and Chesapeake Utilities CPK — to decide which stock is a better pick for your portfolio now.

Both stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Southwest Gas has a market capitalization of $5.11 billion, while Chesapeake Utilities has $3.02 billion.

SWX & CPK’s Growth Projections

The Zacks Consensus Estimate for Southwest Gas’ 2025 earnings is pegged at $3.74 per share on revenues of $5.25 billion. This indicates a year-over-year bottom-line increase of 18.4% and top-line growth of 2.8%.

The consensus mark for Chesapeake Utilities’ 2025 earnings is pinned at $6.25 per share on revenues of $849.1 million. This implies year-over-year bottom-line growth of 16% and a top-line improvement of 7.9%.

SWX & CPK’s Stock Price Performance

In the past three months, CPK’s shares have risen 9.1% against the industry's decline of 5.5%. Shares of SWX have risen 1.8% in the same time frame.

Debt Position of SWX & CPK

The debt-to-capital ratio is a vital indicator of the financial position of a company. The indicator shows the amount of debt used to run a business. Southwest Gas and Chesapeake Utilities have a debt-to-capital of 57.88% and 51.63%, respectively, compared with the sector’s 60.26%.

SWX & CPK’s Dividend Yield

Utility companies generally distribute dividends and increase shareholders’ value. Currently, the dividend yield for Southwest Gas is 3.49%, while the same for Chesapeake Utilities is 1.95%. The dividend yields of both companies are better than the Zacks S&P 500 Composite’s average of 1.38%.

SWX & CPK Trading at a Premium

Southwest Gas is currently trading at a premium compared to its industry on a forward 12-month P/E basis. SWX is trading at a P/E F12M of 18.44X compared to its industry average of 13.94X. Chesapeake Utilities is trading at a P/E F12M of 20.57X.

Conclusion

Both Southwest Gas and Chesapeake Utilities stocks are well-positioned and, hence, make good investment picks for your portfolio. They have the potential to improve further from their current position and serve the demands of their growing customer base. However, our choice at this moment is CPK, given its better top-line growth, debt management and price performance than SWX.

 

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This article originally published on Zacks Investment Research (zacks.com).

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