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UGI to Benefit From Strategic Acquisitions & Investments

Zacks Equity Research
·2-min read

UGI Corporation’s UGI strategic acquisitions and planned capital expenditures are expected to boost its performance. An uptick in customer base boosts the predictability of earnings. UGI’s regular dividend payment increases shareholders’ value.

However, this Zacks Rank #3 (Hold) stock faces competition from other clean sources and risks related to the seasonality of its business.

Tailwinds

UGI continues to make systematic capital investments to address the infrastructural need of various capital projects. The investments are also aimed at increasing the safety and reliability of natural gas production and storage facilities, as well as replacing the aging infrastructure for system upgrading.

These additions and updates allow UGI to serve the expanding customer base more efficiently. The company invested $835 million in fiscal 2022 and plans to invest $4.8-$5.2 billion during 2023-2026.

UGI is benefiting from the strategic acquisitions of Stonehenge and Mountaineer. In 2022, it completed the acquisition of Stonehenge. This is in sync with the utility’s growth strategies that include the expansion of midstream natural gas gathering assets within the Appalachian region. In the fourth quarter of fiscal 2022, the company completed the acquisition of a controlling financial stake in Pennant, which will be immediately accretive to earnings.

Headwinds

The company runs a seasonal business. A decrease in the demand for energy products and services due to warmer-than-normal winter season can lower its profitability. In addition, unprecedented volatility in commodity prices in Europe had a negative impact on average LPG per unit and energy marketing margins in the UGI International segment.

Stocks to Consider

Some better-ranked stocks from the same sector are Atmos Energy Corp. ATO, NewJersey Resources NJR and OGE Energy Corp. OGE, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ATO’s long-term (three to five year) earnings growth rate is estimated to be 7.48%. The Zacks Consensus Estimate for ATO’s 2023 earnings per share (EPS) indicates an increase of 7.32%.

NJR’s long-term earnings growth rate is pegged at 6%. The Zacks Consensus Estimate for NJR’s 2023 EPS implies an improvement of 5.6%.

OGE Energy’s long-term earnings growth rate is pegged at 17.89%. It delivered an average earnings surprise of 19.92% in the previous four quarters.

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Zacks Investment Research