On Mar 22, 2013, we downgraded our recommendation on Ferrellgas Partners L.P. (FGP) to Neutral from Outperform. This U.S. propane distributor currently has a Zacks Rank #3 (Hold).
Why the Downgrade?
Ferrellgas Partners’ several negative factors including over dependence on a few propane suppliers, a highly competitive propane distribution business environment and intense competition from other energy sources compel our downward revision.
In the second quarter of fiscal 2013, ending Jan 31, Ferrellgas Partners reported mixed results. Revenues were in line with the Zacks Consensus Estimate, while earnings per unit fell short of the same.
Causes for Concern
Ferrellgas Partners is dependent on a few major propane suppliers. If one of the suppliers fails to provide required propane in time, then its operations might get hampered. Subsequently, this will negatively affect the partnership’s overall results.
Ferrellgas Partners faces competition from other types of energy like electricity, oil and natural gas. Some of these are less costly than the equivalent energy value of propane. These different types of energies are threats to the future of propane demand.
Weather conditions also have a major impact on the demand for propane. Warmer-than-normal temperature during winters or dry or warm weather during the harvest season would result in reduced propane usage, thus significantly impacting the partnership’s propane sales.
Other Stocks to Consider
Besides Ferrellgas Partners L.P., other stocks from the industry like Calumet Specialty Products Partners LP (CLMT), Lehigh Gas Partners LP (LGP) and Marathon Petroleum Corporation (MPC) are presently performing well and currently carries a Zacks Rank #1 (Strong Buy).
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