UGI Corporation (UGI - Free Report) recently announced a merger agreement with AmeriGas Partners, L.P. (APU - Free Report) . Per the agreement UGI Corp will buy 69.2 million publicly held common units of AmeriGas Partners, which represents interest of 74%. The value of the deal is $2.44 billion in cash and stock.
The deal is expected to boost UGI Corp’s cash flow per share by 15% for fiscal 2020 and increase the annualized dividend by 16 cents a share for the month of July. Now, the company has become the sole owner of AmeriGas Partners. UGI Corp expects fiscal 2019 adjusted earnings per share in the range of $2.40-$2.60 per share. Also, it plans to increase fiscal second-quarter dividend by 15% and raise an additional 10% after closure of the transaction.
UGI Corp has has invested nearly $594.3 million of capex in fiscal 2018 to address infrastructural requirements and strategic acquisitions. The company expects to invest roughly $400 million for utilities in fiscal 2019 and $1.6 billion over the next four years.
AmeriGas Partners is the largest retail propane marketer in the United States and serves more than 1.7 million customers in all 50 states from approximately 1,900 distribution locations. We expect that AmeriGas, as a fully-owned subsidiary of UGI Corp, will drive adjusted EPS beginning in fiscal 2020.
Merger & Acquisition in Utility Space
Apart from organic ventures, Utility companies are also taking the inorganic route to expand their existing operations. Thus, merger and acquisition (“M&A”) activities are common in utility space.
Dominion Energy (D - Free Report) completed the merger with SCANA Corporation on Jan 1, 2019, which added several high-quality businesses to the business. The company expects this merger to boost earnings by 10 cents a share per year over the long term. The new operating segment — Southeast Energy Group — will include all former SCANA operations. We believe that in a mature energy market like the United States, M&As will enhance market shares of Utility companies.
In the past 12 months, shares of UGI Corp have improved 15.8% compared with the industry’s rise of 16.1%.
Zacks Rank & Other Key Pick
UGI Corp currently carries a Zacks Rank #4 (Sell). A better-ranked stock from the same industry is ONEOK, Inc. (OKE - Free Report) that holds a Zacks Rank #2 (Buy). The company’s average four-quarter positive earnings surprise is 1.24% and long-term (3 to 5 years) earnings growth is pegged at 11.49%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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