UPDATE: JP Morgan Initiates Underweight, $12 PT on Ferrellgas Partners
JP Morgan initiates a rating of Overweight with a price target of $12 on Ferrelgas Partners (NYSE: FGP) on the company's headwinds related to pricing and financing.
JP Morgan says, "We believe the partnership faces significant near-term headwinds, putting considerable pressure on distribution coverage. FGP is a consolidator of “Mom & Pop” propane companies within the highly fragmented industry; however, due to warm weather and conservation efforts, FGP's overall EBITDA is decreasing despite acquisitions and cost-cutting. As a result, distribution coverage dropped to ~0.8x in F2011 and coverage should drop below 0.6x this fiscal year if F2H12 results match F2H11 (we forecast coverage slipping to ~0.5x forF2012). In addition, we forecast FGP coming close to violating credit agreement covenants related to leverage ratios and interest coverage. Triggering those covenants could force a cut or suspension in cash distributions if the covenants are not amended."
FGP closed at $14.88 on Friday.
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