Management indicated that they were considering a distribution cut for next quarter due to poor business performance. Previously management indicated they were willing to borrow money to pay the distribution until cash flow improved. Wells Fargo just lowered their target price to $17-19 per unit from $32-34 per unit.
Management's message was that the dividend is probably going to be cut. However they didn't give any specific numbers. The lack of specificity causes fear so investors bail and move to what they believe is a more predictable return on their money. This stock may bounce back somewhat but not much until there are more specific numbers on the dividend and the fear is removed. I sold this morning and bought SDT - who knows - it's all a gamble.
By Travis Hoium | More Articles January 27, 2012 | Comments (1)
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of propane distributor Inergy (NYSE: NRGY ) fell as much as 24% today as warm weather put pressure on the company's business.
So what: The company said it may reduce distributions and is reviewing operations because of an unexpectedly warm winter, which has crushed demand for propane. Cash flows in 2011 only covered 68% of distributions, so management is going to review future distribution levels and may cut them to match future cash flows.
Now what: The weak demand shouldn't be a huge surprise, especially for those of us in Northern states enjoying the warm weather. But one bad year doesn't make a trend, and I think this sell-off is awfully big considering the fact that next year we could be back to more normal temperature levels. For investors willing to wait out the warmth this year, I think shares will recover long term as cold eventually blankets the country and Inergy's business lights up again.
/////////////////////////////////////////////// I'm holding. So best of luck to all.