Ferrellgas Partners to Gain on Acquisitions & Customer Growth

Ferrellgas PartnersFGP extensive presence in the United States, acquisitions and organic initiatives as well as increasing Blue Rhino tank exchange sales locations are likely to boost growth.

We recently issued an updated research report on Ferrellgas Partners. The stock currently carries a zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Units of the partnership have gained 29% on a year-to-date basis compared with the industry’s rise of 8.9%.

What’s Driving the Stock?

Ferrellgas Partners serves propane to customers across the United States. The partnership registered retail propane customer growth of 4% in the fiscal fourth quarter, 2019, from prior-year quarter’s levels and Retail propane sales volume growth of 6.1% from the year-ago quarter’s tally. It is expanding its tank exchange Blue Rhino business. Expansion of the business is important for the partnership as it is less dependent on weather and provides visibility for future earnings.

The partnership is focused on its strategy to expand business through strategic acquisitions and organic initiatives. During fiscal 2019, the partnership acquired propane distribution assets, mostly from independent distributors, with an aggregate value of $15.2 million.  To expand footprint in the United States, the partnership has acquired nearly 300 independent retail companies since 1939.

Apart from adding assets through acquisitions, the firm is divesting less profitable businesses. The sale of non-core assets is another strategy of Ferrellgas Partners to lower debt levels and expand operations. The partnership’s long-term debt was $1,457 million as of Jul 31, 2019 compared with $2,078.6 million as of Jul 31, 2018. We believe that the partnership will benefit from the interest rate cuts.

However, Ferrellgas Partners’ dependency on few vendors for propane can affect supply if they fail to meet obligations. Sudden hike in wholesale price of propane and competition with other companies that supply natural gas and oil can hamper its propane distribution business. Increasing demand for these sources may lower demand for propane.

Key Picks

Some better-ranked stocks from the same sector are Magellan Midstream Partners, L.P. MMP, Canadian Solar Inc CSIQ and Equitrans Midstream Corporation ETRN. While Equitrans Midstream sports a Zacks Rank #1, Magellan Midstream and Canadian Solar hold a Zacks Rank #2 (Buy).

Magellan Midstream Partners delivered an average positive earnings surprise of 3.70% in the last four quarters. The company’s long-term (three to five years) earnings growth is pegged at 6%.

Canadian Solar pulled off an average positive earnings surprise of 115.66% in the trailing four quarters. The company’s long-term earnings growth is pegged at 32%.

Equitrans Midstream delivered an average positive earnings surprise of 26.51% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings moved up 13.19% in the past 60 days to $1.63 per unit.

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