Zacks_Analysts' Blog : Ferrellgas Rises to 'Neutral' - Analyst Blog

We recently upgraded our recommendation on Ferrellgas Partners L.P. (FGP) to ‘Neutral’ seeing potential in the partnership’s strategy of growing-through-acquisitions and by expanding its presence.

We believe the partnership's strategy of pushing for acquisitions supplements its organic growth efforts. Since the beginning of fiscal year 2011, the partnership has already made five acquisitions.

Following the recent quarter, in July, Ferrellgas progressed towards its strategy of acquiring new businesses that complement its portfolio. The partnership signed a deal to acquire Williams Panhandle Propane, a Florida-based independent propane retailer.

Through the acquisition of Williams Panhandle the partnership will significantly and strategically expand in Florida's growing state capital, as well as along its Gulf coast. This acquisition also gives access to an attractive market that complements its existing operations.  

Ferrellgas has also made progress in improving operating efficiencies, which should help its cost base. We also appreciate the partnership’s efforts at asset-liability management by lowering debt and improving liquidity.

However, a little disappointment on Ferrellgas’ recent quarter results and the absence of distribution growth for more than a decade discourage us from being more positive on the stock. While recent acquisitions have the potential to generate strong cash flows, we believe that the first priority for excess cash will remain debt repayment and not higher distributions.

In a nut shell, Ferrellgas’ stagnant distribution growth has led it to being traded at a discount to its propane peers and we believe this situation is likely to continue in the near-term, affecting the unit price. Moreover, we see increased competition for Ferrellgas from within and outside (natural gas distributors) the industry.

Overland Park, Kansas-based Ferrellgas Partners L.P. is a leading distributor of propane and related equipment in the U.S. The partnership provides propane services to Residential, Industrial, Portable Tank Exchange, Agricultural and Wholesale customers.

Ferrellgas Partners currently retains a Zacks #3 Rank (short-term Hold rating), matching our long-term Neutral view on the stock. On a competitive landscape, the partnership ranks at par with its peers, AmeriGas Partners L.P. (APU) and Energy Transfer Partners L.P. (ETP), who also carry a short term Zacks #3 Rank.