UPDATE: Stifel Raises Suburban Propane (SPH) to Buy on Potenital for Colder Winter
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(Updated - October 13, 2016 8:48 AM EDT)
Stifel upgraded Suburban Propane (NYSE: SPH) from Hold to Buy with a price target of $36.00 (from $34.00). Analyst Brian J. Brungardt, Jr. tied the upgrade in part to expectations for a colder winter.
"Following a review of historical propane volume trends and associated heating degree days, we have a growing confidence the partnership will experience modestly improved volumes in the upcoming winter heating season based on EIA’s Short Term Energy Outlook. Accordingly, we are upgrading units to Buy from Hold and establishing a target price of $36," said Brungardt.
"While it always made intuitive sense for the relationship between propane volumes sold and associated heating degree days, we admittedly did not view enough data to draw strong enough predictive estimates. However, we looked at data between 2012 and 2016 heating seasons to account for the post-Inergy propane acquisition and we believe the resulting regression analysis fits the data set as it produced an R squared of 0.9158," continued the analyst.
Brungardt added, "While we are cognizant of the risks – e.g. another warm winter, significant margin erosion, etc. – we view the current valuation as attractive given the potential EBITDA generation on modest uptick in heating degree days. We note the last three times HDD have been at or below approximately 3,400 during the winter months, the following year has seen an increase in HDD of 15% at the lowest end and the EIA is currently forecasting an increase of 14%."
Shares of Suburban Propane closed at $31.94 yesterday.
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