We have upgraded our recommendation on Ferrellgas Partners L.P. (FGP) to Outperform from Neutral, taking into consideration its strong acquisition strategy, lower cost of operation, debt minimization efforts and financial flexibility. The partnership has also increased its unitholder value through payment of cash distribution.
In addition, a warmer-than-expected summer is likely to improve the partnership's sales volume, though we are skeptical about the seasonal variance in the demand for propane and a highly competitive propane distribution business environment. Over the long run, however, we expect the partnership to outperform its peers given its focus on unitholders and cost minimization efforts.
The trailing 12-month EV/EBITDA multiple of the partnership is 18.4x, which is higher than the industry average of 5.8x. Our $24 target price reflects a P/CF multiple of 25.36 based on 2012 EPU (earnings per unit).
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