AmeriGas Partners L.P.APU

Morningstar Rating

Stock Research and Analysis

by Mark Barnett

AmeriGas has a lucrative business with high customer switching costs, and its units would yield 7.2% in distributions at our fair value estimate. We're big fans of AmeriGas' propane business, and we think management's target of 5% annual distribution Read more

Bulls Say

Profitability at AmeriGas is quite impressive, with returns on invested capital exceeding the firm's cost of capital by a comfortable margin.

AmeriGas leases most of its tanks to its customers. This makes the switching costs for current customers relatively high.

Although it's the largest distributor, AmeriGas has only about 9% of the domestic retail propane market. There is plenty of room for continued growth through acquisitions.

Rising insurance premiums and an increasingly competitive industry are putting the heat on smaller firms. This could provide AmeriGas with opportunities to make acquisitions on the cheap.

The MLP structure essentially eliminates corporate income taxes. In addition, AmeriGas' structure is relatively generous to limited partners; the general partner takes only a small slice of profits. Read more

Bears Say

The propane market is very fragmented, with a large number of competitors and little to differentiate them. Also, the barriers to entry are low.

Consumers are making concerted efforts to conserve energy in response to high propane prices. Higher temperatures will damp demand, as well.

AmeriGas has a junk credit rating, largely because of poor collateral (nearly three fourths of its physical assets are storage tanks). This makes taking on new debt costly.

The portable tank exchange business is not nearly as attractive as the firm's core business. Continued expansion in this segment might compress margins.

The aggregate growth rate of the propane marketing industry is minimal at best, possibly even slightly negative. Read more

Strategy

AmeriGas aims to retain the title of the largest propane distributor in the country by aggressively pursuing new customers as well as by buying up smaller, weaker competitors in its highly fragmented Read more

Management

AmeriGas' general partner (responsible for managing the limited partnership) is owned by utility company UGI UGI. UGI also owns 44% of the limited partner. Eugene Bissell has been CEO of the general partner since July 2000. Before becoming CEO, Bissell Read more

Profile

AmeriGas Partners is the largest retail propane marketer in the United States. The company sells about 1 billion gallons of propane annually to 1.3 million customers from Read more

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