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On Wednesday, Mizuho Securities adjusted its outlook on Suburban Propane (NYSE:SPH), reducing the stock's price target to $16 from the previous $17, while retaining an Underperform rating.
The firm's analyst cited the resilience of the company's stock despite disappointing performance in its core propane distribution operations. Looking ahead, attention is expected to shift towards Suburban Propane's investments in renewable energy as the 2024/2025 heating season is still several months away.
The analyst expressed skepticism regarding the potential upside from the company's renewable investments due to the ongoing underperformance of federal Renewable Identification Numbers (RIN) and state Low Carbon Fuel Standards (LCFS) credits.
The current strength of the stock units was also questioned, with the possibility raised that it might be influenced by passive index investing, which had previously led to a downgrade to the Underperform rating.
Suburban Propane's valuation multiple is anticipated to regress to the target of 7.5 times, as per Mizuho's analysis. The revised price target reflects an expectation of lower EBITDA estimates and limited benefits from the renewable segment due to tougher project economics.
The firm remains cautious on the stock's outlook, particularly in light of the challenges facing low-carbon credit markets.
In other recent news, Suburban Propane Partners navigated a challenging second quarter, with warmer weather leading to a slight decrease in volumes and adjusted EBITDA. Despite these headwinds, the company has made progress in its renewable natural gas operations and completed two acquisitions in Florida and Nevada.
The quarterly distribution was announced at $0.32 per common unit, with a healthy trailing 12-month distribution coverage of 1.99x.
Argus, an analyst firm, recently raised the 12-month price target for Suburban Propane shares to $25, up from $24, while reiterating a Buy rating. The firm highlighted the company's attractive dividend yield of approximately 6.3%, which is considered secure. They also anticipate modest growth for the company in the fiscal years 2024 and 2025.
Argus' analysis suggests that Suburban Propane's stock is currently trading at 9 times its fiscal year 2025 earnings per unit estimate, which is below the historical average range. The firm's decision to increase the price target reflects confidence in the company's potential for growth and the perceived undervaluation of the stock in the market.
InvestingPro Insights
As Suburban Propane (NYSE:SPH) navigates through a challenging period marked by underwhelming core operations and uncertainties in the renewable energy credits market, investors are keen on understanding the underlying value and future potential of the stock. According to InvestingPro data, the company boasts a market capitalization of $1.21 billion USD and trades at a P/E ratio of 10.93, which is considered low relative to its near-term earnings growth. This could signal an attractive entry point for value-oriented investors.
Despite the headwinds, Suburban Propane has maintained its dividend payments for 29 consecutive years, showcasing a commitment to shareholder returns. The current dividend yield stands at a robust 6.87%, significantly higher than many of its peers, which could be appealing to income-focused investors. Moreover, while analysts anticipate a sales decline in the current year, they also predict the company will remain profitable, with a strong free cash flow yield implied by its valuation.
For those considering an investment in Suburban Propane, InvestingPro offers additional insights and analytics, including two specific InvestingPro Tips: the company is trading at a low earnings multiple and pays a significant dividend to shareholders. These factors, combined with real-time metrics and an expert analysis, may help investors make a more informed decision. Suburban Propane enthusiasts can further explore these insights and gain access to all 10 tips available on InvestingPro by using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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