Morningstar Rating

Stock Research and Analysis

by Mark Barnett

Bulls Say

The acquisition of Inergy should bring significant synergies between the two firms and adds profitable customers, nearly doubling Suburban's size.
A significant portion of Suburban's propane customers leases their tanks from the company. This makes the switching costs for current customers relatively high.
The fragmented nature of the propane distribution industry leaves room for growth by acquisition and cost-cutting, a model Suburban has proven adept at managing. Read more 

Bears Say

We believe propane usage is in secular decline, meaning Suburban's growth prospects are nonexistent without continuing acquisitions and increased margin from customers. The latter in turn can further spur conservation.
The price tag on the Inergy deal wasn't cheap, and we expect some significant customer attrition could be taking place.
Suburban's coverage ratio can dip if volume decreases dramatically or if the firm fails to insulate itself against commodity price risk, and persistent weak volumes would threaten payouts. Read more 

Management

The move to lever up and swallow Inergy's propane business was a bold move that can prove value-accretive only if management is able to find significant synergies. The price tag was high, and we expect that both Suburban and Inergy's aggressive pricing   Read more 

Profile

Suburban Propane Partners distributes propane, fuel oil, and other refined fuels to about 1.2 million customers primarily in the East Coast and West Coast regions of the   Read more 

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