Market Overview

Citi Upgrades Ferrellgas Partners, Sees 'Sufficient Value' In Company's Propane Business


Ferrellgas Partners, L.P. (NYSE: FGP) is one of the largest distributors of propane and related accessories and serves around one million residential, commercial, industrial and agricultural customers across all 50 states and also operates a crude oil logistics business.

In a report published Tuesday evening, Faisel Khan of Citi upgraded shares of Ferrellgas to Neutral/High Risk from Sell with a price target lowered to $8 from $11.

The analyst downgraded Ferrellgas to Sell in early September.

The company previously warned investors in September that there may be a reduction in its annual cash distribution to $1 per unit from $2.05, but Khan believes a reduction to $1 per unit won't be sufficient in de-levering the partnership fast enough. The analyst believes the distribution should be slashed to $0.60 per unit and the company also needs to undertake a small equity issuance to de-lever to sub-covenant levels by mid-2018.

However, the analyst did acknowledge that much of the risk surrounding Ferrellgas' cash flows and distributions are reflected in the stock and there remains sufficient value in the company's propane business to justify an $8 price target even with a deeper distribution cut. A complete suspension to the distribution is also possible if winter temperatures come in warmer than normal - but this doesn't appear to be case for the time being.

In the near-term, Ferrellgas' stock will remain volatile, especially as expectations on winter weather evolves. As such, any dip in the stock is expected to be temporary and the units will "find a floor that incorporates the base value of the propane business."

In addition, Khan suggested that at current levels, Ferrellgas could attract a strategic buyer to further consolidated the already fragmented retail propane distribution industry.

Latest Ratings for FGP

Mar 2018MaintainsSellSell
Dec 2016UpgradesUnderperformSector Perform
Dec 2016UpgradesUnderweightNeutral

View More Analyst Ratings for FGP
View the Latest Analyst Ratings

Posted-In: Faisel Khan ferrellgas partners Natural Gas propane winterAnalyst Color Analyst Ratings


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