On Nov 20, 2013, we have reiterated our Neutral recommendation on Ferrellgas Partners LP (FGP). The partnership currently has a Zacks Rank #3 (Hold).
Why the Reiteration?
Ferrellgas Partners’ loss per unit in the fourth quarter of fiscal 2013 was 36 cents, wider than the Zacks Consensus Estimate of a loss of 29 cents. However, the quarterly loss per unit narrowed by 9 cents year over year. On the revenue front, reported sales were higher than the consensus estimate as well as the prior-year figure. The improvement in results was primarily driven by higher propane sales volumes and enhancement of operating efficiencies.
Ferrellgas Partners continues to derive benefit from its inorganic growth strategy. In fiscal-year 2013, the partnership completed numerous strategic acquisitions, including Western Petroleum, Mr. Bar-B-Q, IGS Propane and Flores Gas. This activity is part of the partnership’s long-term strategy to be one of the top propane companies of the U.S. besides expanding its product portfolio.
Ferrellgas Partners is also taking initiatives to maximize unitholders’ wealth. The partnership has a stable record of paying cash distributions. During fiscal 2013, the partnership paid $177.2 million as cash distribution. This effort will help Ferrellgas Partners to attract new investors.
On the flip side, weather conditions have a significant impact on the demand for propane. We believe milder winters or a dry or warm weather during the harvest season would result in reduced propane usage, thus significantly impacting Ferrellgas Partners’ propane sales.
In addition, the partnership is dependent on a few major propane suppliers. During fiscal 2013, the partnership purchased 55% of propane from six suppliers. If any of the suppliers fails to provide the required propane on time, Ferrellgas Partners’ operations will be affected.
Other Stocks to Consider
Stocks in the sector that are currently performing well include Abraxas Petroleum Corp. (AXAS), Bonanza Creek Energy, Inc. (BCEI) and Harvest Natural Resources Inc. (HNR), each with a Zacks Rank #1 (Strong Buy).