Sell Rating on Suburban Propane Due to Weak Q1, Valuation Concerns, and High Leverage

Analyst Ned Baramov of Wells Fargo maintained a Sell rating on Suburban Propane (SPH – Research Report), retaining the price target of $17.00.

Ned Baramov has given his Sell rating due to a combination of factors impacting Suburban Propane’s financial outlook. Firstly, the company experienced a weaker than expected first quarter, with adjusted EBITDA falling short of both consensus and internal estimates, primarily due to warmer weather affecting retail propane volumes and a less active crop drying season. Despite expectations of improved performance in the second quarter driven by colder weather, other challenges remain.
Suburban Propane’s valuation concerns, elevated leverage levels, and ongoing capital needs for renewable natural gas projects contribute to the cautious outlook. The company’s leverage ratio is notably high, although it is projected to decrease by the end of the fiscal year. Additionally, while the stock has recently benefited from index rebalancing, its lower EV/EBITDA multiple compared to the median suggests a justified discount, given the uncertainties surrounding propane volumes. These elements combined underpin Baramov’s continued Underweight rating on the stock.

In another report released on February 3, Mizuho Securities also maintained a Sell rating on the stock with a $17.00 price target.

Based on the recent corporate insider activity of 41 insiders, corporate insider sentiment is negative on the stock. This means that over the past quarter there has been an increase of insiders selling their shares of SPH in relation to earlier this year.