FGP Ferrellgas Partners LP

Ferrellgas Partners L.P.  (FGP) announced the acquisition of the propane operation of Western Petroleum for an undisclosed amount. The partnership started the process of this acquisition from Aug 1, 2012.

Utah-based Western Petroleum engages in selling and transporting diesel fuel, gasoline, kerosene, lubricants with multiple brands, propane, and several kinds of chemicals including methanol and washer fluid. It operates primarily in the Rocky Mountain and the southern states, and the northern plains.

Prior to this acquisition, Ferrellgas Partners did not have a strong existence in Utah, northwest Colo. and Wyo. For a long time, the partnership has been targeting to expand its operations in this territory. This acquisition provides Ferrellgas Partners an opportunity to establish its first retail set-up in Utah.

This marks Ferrellgas Partners’ fifth acquisition in the current fiscal year, taking the total tally to nearly 242 to date. The partnership’s recent significant buys were N.Y.-based Mr. Bar-B-Q in Mar 2013, Conn.-based IGS Propane in Dec 2012, El Paso-based Flores Gas in Oct 2012 and Sacramento-based Capitol City Propane in Sep 2012. These acquisitions will enable Ferrellgas Partners to strengthen its presence in the state and add customers.

We know that Ferrellgas Partners follows a couple of rationale in terms of its acquisition strategy, including acquiring an organization having the same line of business and the take-over should be immediately accretive. We believe the current acquisition to be immediately accretive to the partnership, given Western Petroleum’s presence in the region.

It is evident that Ferrellgas Partners strongly follows an inorganic growth strategy to expand its domestic operation, particularly in the Southwest and Northeast areas of the U.S. These acquisitions are part of the partnership’s long-term strategy to grow by an aggressive pursuit of well-run propane companies.

However, we believe that a highly competitive propane distribution business environment, over-reliance on a few propane suppliers and higher degree of competition from other energy sources may to some extent challenge Ferrellgas Partners’ future performance.

Ferrellgas Partners currently has a Zacks Rank #3 (Hold). Besides the partnership, the stocks of Calumet Specialty Products Partners LP (CLMT) and NGL Energy Partners LP (NGL) with a Zacks Rank #1 (Strong Buy), and Delek US Holdings, Inc. (DK) with a Zacks Rank #2 (Buy) are worth considering.

 
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