Low Natural Gas Prices Are A Headwind For Suburban Propane

Argus’ David Coleman believes Suburban Propane Partners LP (NYSE: SPH) “faces structural headwinds, as propane usage has become less attractive relative to other fuel sources, such as low-cost natural gas.”

Coleman maintains a Hold rating on the company.

Growth Via Acquisitions

The analyst also believes Suburban Propane will need to continue to grow through acquisition, which is expected to weigh on the company’s balance sheet as well as on future distribution growth.

“Suburban has done a much better job of managing its financial position over the last few years. Even so, and despite the company’s growing cash flow, we look for modest distribution growth over the next 12–18 months from a current annualized rate of $3.55,” Coleman mentioned.

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The analyst stated that the current yield of 10.9 percent could be appealing to income-oriented investors, and it is likely to support the share price, despite Suburban Propane’s challenging business fundamentals.

Estimates Lowered

The FY16 EPS estimate has been lowered from $1.50 to $1.33 to reflect the disappointing 1H earnings and low propane prices.

The FY17 EPS estimate has been reduced from $2.02 to $1.75.

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