Suburban Propane Partners LP Annual Valuation – 2015 $SPH

suburban-propaneBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Suburban Propane Partners LP (SPH) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Suburban Propane Partners, L.P. (the Partnership) is a nationwide marketer and distributor of a range of products meeting the energy needs of the customers. The Partnership specializes in the distribution of propane, fuel oil and refined fuels, as well as the marketing of natural gas and electricity in deregulated markets. The Company installs and services a range of home comfort equipment, particularly in the areas of heating and ventilation. As of September 28, 2013, it was serving approximately 1.2 million residential, commercial, industrial and agricultural customers through approximately 750 locations in 41 states located primarily in the east and west coast regions of the United States, including Alaska. During the fiscal year ended September 28, 2013 (fiscal 2013), it sold approximately 534.6 million gallons of propane and 53.7 million gallons of fuel oil and refined fuels to retail customers.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $44.61
MG Value $0.00
MG Opinion Overvalued
Value Based on 3% Growth $22.14
Value Based on 0% Growth $12.98
Market Implied Growth Rate 10.36%
NCAV -$20.96
PEmg 29.22
Current Ratio 1.33
PB Ratio 2.70

Balance Sheet – September 2014

Current Assets $295,000,000
Current Liabilities $222,000,000
Total Debt $1,243,000,000
Total Assets $2,609,000,000
Intangibles $1,447,000,000
Total Liabilities $1,588,000,000
Outstanding Shares 61,700,000

Earnings Per Share

2014 $1.56
2013 $1.34
2012 $0.02
2011 $3.22
2010 $3.24
2009 $4.96
2008 $4.70
2007 $3.89
2006 $2.83
2005 -$0.38
2004 $0.93

Earnings Per Share – ModernGraham

2014 $1.53
2013 $1.86
2012 $2.49
2011 $3.82
2010 $4.05
2009 $4.04

Dividend History


Suburban Propane is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient earnings growth or stability over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets, and the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $4.05 in 2010 to $1.53 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 10.36% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of Suburban Propane Partners (SPH) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Suburban Propane Partners (SPH)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Suburban Propane Partners (SPH) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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