UGI Corporation (UGI - Free Report) recently announced an acquisition agreement with TC Energy Corporation (TRP). Per the terms, the company’s subsidiary — UGI Energy Services, LLC — will acquireequity interests of TC Energy’s Columbia Midstream Group LLC (“CMG”). The deal is valued at $1.275 billion.
Benefits of the Deal
CMG possesses five gathering systems, with capacity of roughly 2,675,000 MillionBritish Thermal Unit (MMBtu)/day and 240 miles of pipeline in the Appalachian Basin. The Appalachian Basin is a mature area with abundant oil, gas and coal resources. Moreover, the company focuses on organic growth and is making strategic acquisitions to expand operations. The recent acquisition is expected to boost fee-based revenues. Also, the deal is likely to drive UGI Corp’s cash flow and earnings per share by 6-10% in the long term as well as dividend by 4%.
In line with this, the company announced on April 2019 a definitive agreement to acquire 69.2 million common units of AmeriGas owned by the public. Currently, the company is the sole owner of AmeriGas Partners.
In the past two decades, UGI Corp has made investments to address the infrastructural need for various capital projects. The company has completed acquisitions to curb competition, to increase safety and reliability of its natural gas production and storage facilities as well as to replace aging infrastructure for modernizing the system. To further strengthen the existing infrastructure, the company expects to invest roughly $400 million for utilities in fiscal 2019. The company expects to invest $900 million in fiscal 2020. The company plans to invest approximately $3.7 billion in capital through the 2018-2022 period.
The company’s initiatives are reflected through increasing customer base and regular dividend payments.It has added almost 258,600 customers in the past two decades and has returned $176.9 million as dividend payments as well as $59.8 million as share repurchase to common stockholders in fiscal 2018. We believe that the recent acquisition will enable the company to maintain performance in the future.
The company’s long-term strategy is to stabilize earnings with higher percentage of fee-based income. UGI Corp anticipates 56% fee based margin in 2022. In line with this, the company is undertaking acquisitions to increase asset base.
Investments in Utility Sector
Utilities provide basic services like water, electric and natural gas. Most utility companies are mature and have extensive infrastructures. To deliver safe and clean services, these facilities require regular maintenance and upgrade. Thus, funding is an important factor in this sector. Companies like NextEra Energy, Inc. (NEE - Free Report) , NiSource, Inc (NI - Free Report) and Dominion Energy Inc (D - Free Report) are making significant investments on long-term basis.
NextEra Energy has decided to invest $39.5 billion in the 2019-2023 time frame in various projects. NiSource plans to make capital investment of nearly $1.6-$1.7 billion in 2019 and $1.6-$2 billion annually over the 2020-2022 time period. Dominion Energy plans to invest $26 billion in the 2019-2023 time period to strengthen its existing infrastructure.
Zacks Rank & Price Movement
UGI Corp currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 12 months, shares of UGI Corp have improved 1% compared with the industry’s rise of 9.2%.
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