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Suburban Propane Partners LP Valuation – June 2018 $SPH

Company Profile (excerpt from Reuters): Suburban Propane Partners, L.P., incorporated on December 18, 1995, is s a marketer and distributor of a range of products. The Company 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’s segments include Propane, Fuel Oil and Refined Fuels, Natural Gas and Electricity, and All Other. In support of its marketing and distribution operations, the Company installs and services a range of home comfort equipment, particularly in the areas of heating and ventilation. 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. As of September 24, 2016, it had sold approximately 414.8 million gallons of propane and 30.9 million gallons of fuel oil and refined fuels to retail customers.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SPH – June 2018

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 $1,440,571,709 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.41 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 -85.03% Fail
6. Moderate PEmg Ratio PEmg < 20 29.94 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.31 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 1.41 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 17.94 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

EPSmg $0.78
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $11.38
MG Value based on 0% Growth $6.67
Market Implied Growth Rate 10.72%
Current Price $23.49
% 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 small size, 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 $1.53 in 2014 to an estimated $0.78 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.72% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Suburban Propane Partners LP revealed the company was trading above its Graham Number of $13.16. The company pays a dividend of $3.55 per share, for a yield of 15.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 29.94, which was above the industry average of 22.69. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-21.88.

Suburban Propane Partners LP receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$21.88
Graham Number $13.16
PEmg 29.94
Current Ratio 1.41
PB Ratio 2.31
Current Dividend $3.55
Dividend Yield 15.11%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $246,854,000
Total Current Liabilities $175,266,000
Long-Term Debt $1,284,574,000
Total Assets $2,227,981,000
Intangible Assets $1,287,339,000
Total Liabilities $1,598,728,000
Shares Outstanding (Diluted Average) 61,793,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.85
Sep2017 $0.62
Sep2016 $0.24
Sep2015 $1.38
Sep2014 $1.56
Sep2013 $1.34
Sep2012 $0.02
Sep2011 $3.22
Sep2010 $3.24
Sep2009 $4.96
Sep2008 $4.70
Sep2007 $3.89
Sep2006 $2.83
Sep2005 -$0.38
Sep2004 $0.84
Sep2003 $1.86
Sep2002 $2.12
Sep2001 $2.14
Sep2000 $1.70
Sep1999 $0.83
Sep1998 $1.30

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.78
Sep2017 $0.84
Sep2016 $0.94
Sep2015 $1.36
Sep2014 $1.53
Sep2013 $1.86
Sep2012 $2.49
Sep2011 $3.82
Sep2010 $4.05
Sep2009 $4.04
Sep2008 $3.18
Sep2007 $2.21
Sep2006 $1.40
Sep2005 $0.89
Sep2004 $1.60
Sep2003 $1.90
Sep2002 $1.81

Recommended Reading:

Other ModernGraham posts about the company

Suburban Propane Partners Valuation – June 2016 $SPH
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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