On March 31, we have issued an updated research report on Ferrellgas Partners LP (FGP). Overland Park, KS.-based propane and related equipment distributor continues to expand its operations through inorganic growth activities. However, over-reliance on weather condition and strong competition from other energy sources might challenge the partnership’s future performance.
Ferrellgas Partners, a Zacks Rank #3 (Hold) stock, reported mixed results in the second quarter of fiscal 2014. Quarterly earnings per unit missed the Zacks Consensus Estimate, while revenues beat the same. On a year-over-year basis, both top as well as bottom line increased primarily on the back of solid contribution from the Propane and other gas liquids sales and Other segments.
Ferrellgas Partners’ acquisition strategy involves buying up assets, which has the same line of business. In fiscal 2014, the partnership completed three acquisitions. Systematic inorganic growth program will enable Ferrellgas Partners to strengthen its presence in the U.S. and expand its product offerings.
The partnership has a stable cash distribution payment history. Since 1994, Ferrellgas Partners is paying quarterly cash distribution in each of the quarters. During the first six months of fiscal 2014, the partnership paid $79.9 million as quarterly cash distribution.
Ferrellgas Partners’ significant presence in the U.S. and investments to upgrade technology collectively helped the partnership to provide uninterrupted services to the retail and bulk propane customers.
On the flip side, weather conditions have a significant impact on demand for propane. We believe milder winters and a dry or warm weather during the harvest season at Ferrellgas Partners’ service territory would result in reduced propane usage, thus impacting propane sales volume.
Key Picks from the Sector
Other better-ranked stocks in this sector include Valero Energy Corporation (VLO), Alon USA Energy, Inc. (ALJ) and Phillips 66 Partners LP (PSXP). While Valero Energy carries a Zacks Rank #1 (Strong Buy), Alon USA and Phillips 66 hold a Zacks Rank #2 (Buy).
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