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UGI stock sees upside as new CEO sparks turnaround optimism, says Mizuho

EditorEmilio Ghigini
Published 15/11/2024, 11:28
UGI
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On Friday, Mizuho (NYSE:MFG) Securities showed a positive stance on UGI Corporation (NYSE:NYSE:UGI), upgrading the stock from Neutral to Outperform. Alongside the upgrade, the firm also increased its price target for UGI shares from $27.00 to $30.00.

The analyst at Mizuho cited a favorable risk-reward balance, anticipating that UGI's potential for earnings growth and stability would become more apparent by fiscal year 2026.

Despite the challenges expected in fiscal year 2025, the analyst expressed confidence in UGI's ability to address structural aspects of its business portfolio mix, which could drive the stock's performance upwards.

The firm highlighted that UGI's year-to-date performance showed a decline of 5.5%, contrasting with the broader rallies seen in the utilities and midstream sectors, which have seen increases of 20.4% and 35.3%, respectively.

The incoming CEO, Bob Flexon, was mentioned as a positive influence for UGI's future, with his strong track record in executing turnarounds within the energy sector. The analyst believes that Flexon's leadership could strengthen investor confidence in the company's direction and forthcoming developments.

Furthermore, the analyst pointed out that UGI's sum-of-the-parts (SOTP) valuation remains significantly higher than its market value, which supports the rationale for the raised price target. The improvement in UGI's financial stability was also noted as a factor that has already begun to materialize, suggesting progress in the company's strategic initiatives.

In other recent news, UGI Corporation reported a significant rise in its adjusted earnings per share (EPS) for the third quarter of fiscal year 2024, marking $0.06 compared to a breakeven in the prior year.

This progress is credited to strategic moves such as the divestiture of its natural gas-fired facility in Pennsylvania and LPG business in Switzerland, enhancing operational efficiency and environmental responsibility.

The company also revealed it is on track to meet its adjusted EPS guidance for fiscal year 2024 and expects considerable cost savings by the end of fiscal year 2025.

In addition, UGI Corp has appointed KPMG as the new auditor for the fiscal year ending September 30, 2025, following the dismissal of Ernst & Young LLP (EY).

The company clarified there were no disagreements with EY on accounting principles or practices, financial statement disclosure, or auditing scope or procedure during the fiscal years audited by EY.

UGI Corp has also made considerable strides in strengthening its balance sheet, reducing debt, and optimizing its portfolio. The company has successfully divested non-core assets and reduced its absolute debt by approximately $300 million since the beginning of fiscal 2023.

These are recent developments that underline UGI Corporation's proactive approach to managing its financial health and investing in its core operations.

InvestingPro Insights

UGI Corporation's financial metrics and market performance align with Mizuho Securities' optimistic outlook. According to InvestingPro data, UGI's P/E ratio stands at 7.28, indicating that the stock may be undervalued relative to its earnings. This low earnings multiple supports the analyst's view of a favorable risk-reward balance.

InvestingPro Tips highlight UGI's strong dividend history, having raised its dividend for 31 consecutive years and maintained payments for 54 years. This demonstrates the company's commitment to shareholder returns, which could be attractive to investors seeking stable income. The current dividend yield of 6.45% further underscores UGI's appeal as an income stock.

Despite a revenue decline of 22.06% in the last twelve months, UGI has maintained profitability, with a gross profit margin of 53.2%. This resilience in profitability aligns with the analyst's confidence in UGI's potential for earnings growth and stability by fiscal year 2026.

For investors interested in a deeper analysis, InvestingPro offers 6 additional tips that could provide further insights into UGI's investment potential.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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