Critical Comparison: RGC Resources (NASDAQ:RGCO) and Southwest Gas (NYSE:SWX)

RGC Resources (NASDAQ:RGCO) and Southwest Gas (NYSE:SWX) are both utilities companies, but which is the superior investment? We will contrast the two businesses based on the strength of their institutional ownership, profitability, earnings, risk, valuation, dividends and analyst recommendations.

Insider and Institutional Ownership

35.8% of RGC Resources shares are held by institutional investors. Comparatively, 92.8% of Southwest Gas shares are held by institutional investors. 7.2% of RGC Resources shares are held by company insiders. Comparatively, 0.6% of Southwest Gas shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Profitability

This table compares RGC Resources and Southwest Gas’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
RGC Resources	13.05%	11.73%	4.15%
Southwest Gas	17.23%	6.98%	2.72%

Analyst Ratings

This is a breakdown of recent ratings and price targets for RGC Resources and Southwest Gas, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
RGC Resources	0	0	2	0	3.00
Southwest Gas	0	0	7	1	3.12

RGC Resources currently has a consensus target price of $27.00, indicating a potential upside of 16.48%. Southwest Gas has a consensus target price of $101.25, indicating a potential upside of 10.67%. Given RGC Resources’ higher probable upside, equities research analysts clearly believe RGC Resources is more favorable than Southwest Gas.

Volatility and Risk

RGC Resources has a beta of 0.51, meaning that its stock price is 49% less volatile than the S&P 500. Comparatively, Southwest Gas has a beta of 0.55, meaning that its stock price is 45% less volatile than the S&P 500.

Valuation and Earnings

This table compares RGC Resources and Southwest Gas”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
RGC Resources	$95.33 million	2.53	$13.28 million	$1.34	17.30
Southwest Gas	$1.94 billion	3.42	$439.83 million	$4.10	22.31

Southwest Gas has higher revenue and earnings than RGC Resources. RGC Resources is trading at a lower price-to-earnings ratio than Southwest Gas, indicating that it is currently the more affordable of the two stocks.

Dividends

RGC Resources pays an annual dividend of $0.87 per share and has a dividend yield of 3.8%. Southwest Gas pays an annual dividend of $2.58 per share and has a dividend yield of 2.8%. RGC Resources pays out 64.9% of its earnings in the form of a dividend. Southwest Gas pays out 62.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. RGC Resources has raised its dividend for 22 consecutive years. RGC Resources is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Southwest Gas beats RGC Resources on 12 of the 18 factors compared between the two stocks.

About RGC Resources

RGC Resources, Inc., through its subsidiaries, operates as an energy services company. It sells and distributes natural gas to residential, commercial, and industrial customers in Roanoke, Virginia, and the surrounding localities. The company also provides various unregulated services. It operates approximately 1,179 miles of transmission and distribution pipeline; and a liquefied natural gas storage facility, as well as owns and operates six metering stations. In addition, it produces biogas. RGC Resources, Inc. was founded in 1883 and is based in Roanoke, Virginia.

About Southwest Gas

Southwest Gas Holdings, Inc., through its subsidiaries, distributes and transports natural gas in Arizona, Nevada, and California. The company operates through Natural Gas Distribution, Utility Infrastructure Services, and Pipeline and Storage segments. It also provides trenching, installation, and replacement of underground pipes, as well as maintenance services for energy distribution systems. As of December 31, 2023, it had 2,226,000 residential, commercial, industrial, and other natural gas customers. Southwest Gas Holdings, Inc. was incorporated in 1931 and is headquartered in Las Vegas, Nevada.