We downgrade our recommendation on
Ferrellgas Partners L.P.
) to Neutral from Outperform due to a highly competitive propane
distribution business environment, reliance on few propane
suppliers, seasonal variance in the demand for propane and higher
degree of competition from other energy sources.
We know that Ferrellgas is dependent on a few principal propane
suppliers, which increase the risk of interruption in supply and
transportation. If one of the suppliers fails to provide the
required propane in time, then its operations might get hampered.
Subsequently, this will negatively affect the partnership's
operational as well as financial results.
Weather conditions have a significant impact on the demand for
propane. This makes the partnership's financial performance
vulnerable to warm winters and unfavorable weather in the grilling
season. Warmer-than-normal temperatures during winter or dry or
warm weather during the harvest season would result in reduced
propane usage, while significantly impacting the partnership's
In addition, we know Ferrellgas faces strong competition from other
types of fuels, including oil and natural gas. Some of these are
less costly than the equivalent value of propane and are threat to
future propane demand. If people consume more oil and natural gas,
then the performance graph of the partnership will be affected
Despite dealing with the negatives of Ferrellgas, we have
identified a few strong growth catalysts, which are expected to
provide impetus to the partnership's future performance. These are
the partnership's steady inorganic growth strategy, solid liquidity
position and continuous cost-reduction program.
Ferrellgas Partners L.P. currently has a short-term Zacks #3 Rank
Overland Park, Kansas-based Ferrellgas Partners L.P. is a leading
distributor of propane gas solutions and related equipment in the
U.S. The partnership provides propane services to residential,
industrial, portable tank exchange, agricultural and wholesale
customers. The partnership competes with
Energy Transfer Partners L.P.
ENERGY TRAN PTR (ETP): Free Stock Analysis
FERRELLGAS -LP (FGP): Free Stock Analysis
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