Oil & Gas Stocks

Suburban Propane Partners Valuation – June 2016 $SPH

Benjamin 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 10 Companies Benjamin Graham Would Invest In Today – June 2016.  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 stock analysis showing a specific look at how Suburban Propane Partners (SPH) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Suburban Propane Partners, L.P. (the Partnership) is a marketer and distributor of a range of products meeting the energy needs of the customers. The Company is specialized 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 conducts its business through Suburban Propane, L.P., which operates its propane business and assets (the Operating Partnership), and its direct and indirect subsidiaries. Its general partner, and the general partner of its Operating Partnership, is Suburban Energy Services Group LLC (the General Partner). Subsidiaries of the Operating Partnership include Suburban Sales and Service, Inc. (the Service Company), which conducts a portion of the Partnership’s service work and appliance and parts businesses. It operates in three segments: Propane, Fuel Oil and Refined Fuels, and Natural Gas and Electricity.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SPH – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,041,337,380 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.39 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -78.23% Fail
6. Moderate PEmg Ratio PEmg < 20 38.02 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.23 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.39 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 19.72 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

SPH value chart May 2016

EPSmg $0.87
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $12.55
MG Value based on 0% Growth $7.36
Market Implied Growth Rate 14.76%
Current Price $32.90
% of Intrinsic Value N/A

Suburban Propane Partners LP does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.5 in 2012 to an estimated $0.87 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 14.76% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Suburban Propane Partners LP scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

SPH charts June 2016

Net Current Asset Value (NCAV) -$21.45
Graham Number $1.83
PEmg 38.02
Current Ratio 1.39
PB Ratio 2.23
Current Dividend $3.55
Dividend Yield 10.80%
Number of Consecutive Years of Dividend Growth 19

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $224,876,000
Total Current Liabilities $162,009,000
Long-Term Debt $1,239,662,000
Total Assets $2,439,691,000
Intangible Assets $1,409,554,000
Total Liabilities $1,536,424,000
Shares Outstanding (Diluted Average) 61,135,000

Earnings Per Share History

Next Fiscal Year Estimate $0.01
Sep2015 $1.38
Sep2014 $1.56
Sep2013 $1.34
Sep2012 $0.05
Sep2011 $3.22
Sep2010 $3.24
Sep2009 $4.96
Sep2008 $4.70
Sep2007 $3.89
Sep2006 $2.83
Sep2005 -$0.26
Sep2004 $1.78
Sep2003 $1.86
Sep2002 $2.12
Sep2001 $2.14
Sep2000 $1.70
Sep1999 $0.83
Sep1998 $1.30
Sep1997 $0.46
Sep1996 $0.92

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.87
Sep2015 $1.37
Sep2014 $1.53
Sep2013 $1.87
Sep2012 $2.50
Sep2011 $3.82
Sep2010 $4.05
Sep2009 $4.04
Sep2008 $3.25
Sep2007 $2.36
Sep2006 $1.62
Sep2005 $1.19
Sep2004 $1.91
Sep2003 $1.90
Sep2002 $1.81
Sep2001 $1.54
Sep2000 $1.17

Recommended Reading:

Other ModernGraham posts about the company

Suburban Propane Partners LP Annual Valuation – 2015 $SPH
14 Companies in the Spotlight This Week – 1/4/14
ModernGraham Valuation: Suburban Propane Partners LP (SPH)

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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