Analyst cuts estimates for Southwest Gas

Thursday, Nov. 8, 2001 | 9:49 a.m.

UBS Warburg lowered its estimates and price target on Southwest Gas Corp., citing disappointing earnings and continuing litigation with two former suitors for the company.

UBS Warburg analyst Ronald Barone cut his 2001 earnings estimate from $1.35 per share to $1.25 per share, and his 2002 estimate from $1.45 to $1.40. He also reduced his 12-month target price from $24 to $21. Barone reiterated a "hold" rating on the stock.

Southwest reported a quarterly loss of 51 cents per share on Nov. 1; Barone said his estimate had been for a loss of 41 cents.

Southwest stock closed at $21.10 immediately before releasing its earnings. It has since fallen to $20.56.

Barone had assigned Southwest a 20 percent trading premium over like-sized natural gas utilities because of a strong customer growth rate and "attractiveness as an acquisition candidate." Barone said in a research note he has reduced that premium to 15 percent "as a result of the continued inability to obtain adequate rate relief and the lingering uncertainty related to the litigation with ONEOK and Southern Union."

Tulsa, Okla.-based ONEOK launched a friendly takeover bid for Southwest in 1998; Southern Union of Austin, Texas, initiated a competing, unsolicited bid that was rejected by Southwest. Southern Union sued, claiming the companies had tried to sabotage its efforts by interfering with the regulatory process, and these claims caused ONEOK to break off merger talks with Southwest in early 2000. All three companies are suing one another in Phoenix federal court; the trial is set to begin next week.

"Though the likelihood for a large award against Southwest has been reduced by recent rulings (dismissing many claims against Southwest), the uncertainty of the trial will continue to weigh on (Southwest) shares until the issue is resolved," Barone wrote.

archive