UGI Corporation (UGI - Free Report) completed the acquisition of 69.2 million units of AmeriGas Partners, L.P. This marked the completion of the merger transaction announced on Apr 2, 2019. (Read more: UGI Corp to Acquire AmeriGas Partners' Remaining 74% Interest)
Since the completion of the transaction, AmeriGas Partners will cease to be a MLP and act as a wholly-owned subsidiary of UGI Corp.
How Will UGI Corp Gain From the Merger?
UGI Corp’s acquisition of a 74% interest in AmeriGas gave it complete control over the partnership that serves nearly 1.7 million residential, commercial, industrial, agricultural, wholesale, and motor fuel customers in 50 states from around 1,900 propane distribution locations.
This strategic acquisition will complement the company’s six decades old propane distribution operations that exist in the United States. The transaction will be accretive to UGI Corp’s earnings per share and cash flow.
With only 30 odd days remaining in fiscal 2019, the full benefit of this acquisition will be visible from the next fiscal year. Courtesy of the acquisition, its cash flow is expected to improve 15% in fiscal 2020 from the year-ago level. Earnings per share of the company are also likely to improve in the next fiscal year.
Capital Investment Plans
The company plans to invest approximately $3.7 billion capital in the 2018-2022 period. Over the past couple of decades, it has made investments to address the infrastructural need for various capital projects and completed a number of acquisitions in order to curb competition, increase safety and reliability of natural gas production and storage facilities, as well as replace aging infrastructure for modernizing the system.
UGI Corp continues to expand the customer base through organic growth and strategic initiatives. It added almost 258,600 customers in the last two decades, and 8,500 residential heating and commercial customers year to date. The capital projects will assist the company to expand and strengthen infrastructure, and serve customers more efficiently.
Competitive Propane Space
Propane as an energy source needs to compete with other sources like natural gas and oil. Any drop in the prices of these fossil fuels can negatively impact the demand for the propane distribution business.
UGI Corp’s acquisition of AmeriGas has strengthened its position in the U.S. propane distribution business. However, the company will face tough competition from Ferrellgas Partners (FGP - Free Report) , as this partnership continues to expand footprint in the United States and has acquired nearly 300 independent retail companies since 1939.
Notably, Suburban Propane Partners, L.P. (SPH - Free Report) has a formidable presence in the propane market of the United States. The company controls more than 700 locations in 41 states and serves more than a million customers.
Zacks Rank & A Key Pick
UGI Corp currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Atmos Energy Corporation (ATO - Free Report) , which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Atmos Energy’s long-term earnings growth is currently pegged at 6.7%. The Zacks Consensus Estimate for fiscal 2019 and 2020 has moved up 0.5% and 0.4%, respectively, in past 90 days.
The news was anticipated and appreciated by the market, as is evident from the increase in trading volumes to 12.1 million on Aug 21, 2019 and the stock’s gain of nearly 1.2% in a day’s trade.
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