EUR 850.00 For Business Accounts Only

Morningstar | Lowering Amerigas Fair Value Estimate After Reconsidering Our Long-Term Outlook

AmeriGas is the nation's largest retail propane distributor in an industry that is shrinking. High switching costs for customers, delivery economies of scale, and a wide footprint allow AmeriGas to roll up smaller competitors efficiently. AmeriGas' proven ability to add value from acquisitions should help support cash flows in a tough operating environment. Significant headwinds from the unusually warm 2016 and 2017 winters hurt results and stretched AmeriGas' distribution coverage. AmeriGas will need to improve per-gallon margins and find value-accretive acquisitions to support modest annual distribution growth target while maintaining an average distribution coverage above 1.1 times. A return to normal weather in 2018 has helped assuage near-term balance sheet concerns.AmeriGas' expanded size will make it more difficult to offset internal volume declines, which we estimate at 1.5% per year after a return to normal weather, and there's a risk the company won't find suitable targets to achieve the growth and performance necessary to drive distribution growth.Partially offsetting our expectations for volume declines are attractive growth opportunities in the company's national accounts and cylinder exchange program. National accounts are usually less sensitive to weather and backed by the largest salesforce in the industry, positioning the unit well. Summer demand from AmeriGas' growing cylinder exchange program provides a nice offset to otherwise winter-driven demand.