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On Tuesday, Mizuho (NYSE:MFG) Securities adjusted its outlook for Suburban Propane (NYSE:SPH), increasing the price target on the company’s shares from $16.00 to $17.00. The stock, currently trading at $21.67, sits near its 52-week high of $21.71, having delivered an impressive 7.54% return over the past week. Despite the hike in the price target, the firm maintained its Underperform rating on the stock. According to InvestingPro analysis, the stock appears to be trading above its Fair Value.
The adjustment by Mizuho comes in the wake of an expected rebound in Suburban Propane’s financial year 2025 performance following a notably subdued financial year 2024. The past year saw the company’s lowest adjusted EBITDA since FY17, reaching $238.22 million, which was attributed largely to warmer weather conditions that affected demand. However, since late December, colder weather has prevailed, which is anticipated to positively impact the company’s second fiscal quarter results of 2025. Despite challenges, the company maintains a healthy 6.09% dividend yield and has sustained dividend payments for 30 consecutive years, as highlighted in InvestingPro’s analysis.
The first quarter results of 2025, however, are predicted to be less impressive due to the warmer weather experienced from October through December. Suburban Propane’s recent acquisitions, totaling approximately $65 million, are also expected to contribute to the company’s performance. Notably, this includes the company’s largest single acquisition since 2012, valued at $53 million, in the regions of New Mexico and Arizona.
Mizuho’s analyst anticipates that the upcoming earnings call scheduled for February 6, 2025, before market open, will likely focus on the January to March period. It will also address how Suburban Propane is managing potential increases in demand due to the colder weather, as well as the potential monetization of renewable tax credits.
The decision to raise the price target reflects Mizuho’s revised higher estimates, yet their reiteration of the Underperform rating suggests a cautious stance on the company’s fundamentals. The analyst points out that despite the positive outlook on performance, concerns remain regarding Suburban Propane’s higher leverage and stretched valuation. InvestingPro’s comprehensive analysis reveals a current ratio of 0.51 and a debt-to-equity ratio of 2.47, supporting these concerns. For deeper insights into SPH’s valuation and financial health metrics, including 8 additional ProTips and detailed financial analysis, subscribers can access the full Pro Research Report.
In other recent news, Suburban Propane Partners has reported mixed results for the fiscal year 2024. The company saw a decrease in propane volumes sold and adjusted EBITDA, with net income dropping to $107.7 million from $138.4 million, and EBITDA declining to $250 million from $275 million. This was attributed to warmer weather affecting demand for heating. Despite these challenges, the company made significant strategic acquisitions, adding three propane businesses and over 14,000 new customers.
In addition, Suburban Propane made advancements in its renewable natural gas (RNG) operations, with plans to have more facilities operational by late 2025. The company’s commitment to long-term growth and strategic investments was further emphasized with an expected fiscal 2025 capital expenditure ranging from $40 million to $45 million for propane and $35 million to $45 million for RNG projects. These are recent developments that indicate the company’s resilience and its focus on expanding both its propane and renewable energy operations.
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