We came across a bullish thesis on UGI Corporation (UGI) on Substack by Investing 501. In this article, we will summarize the bulls' thesis on UGI. UGI Corporation (UGI)'s share was trading at $33.23 as of Feb 27. UGI's trailing and forward P/E were 13.03 and 11.15 respectively according to Yahoo Finance.
The sun rising over a sprawling network of oil & gas pipelines near Midland, Texas.
UGI Corporation is at a pivotal moment following years of struggle with its AmeriGas acquisition. The company, a diversified energy provider with operations across natural gas utilities, midstream and marketing, international LPG, and AmeriGas, has seen its stock underperform due to the declining performance of its propane business. Acquired in 2019 for $4.6 billion, AmeriGas was expected to enhance UGI's earnings, but instead, it has become a drag on the company's financials. AmeriGas EBITDA has declined from $584 million in 2019 to $320 million in 2024, with EBITDA margins contracting from 21.8% to 14.1% over the same period. The division has also experienced a 30% drop in retail gallons sold, attributed to operational missteps, poor customer service, and unseasonably warm weather. These struggles have led UGI to take $850 million in goodwill impairments over the past two years, nearly 50% of the initial goodwill assigned to the acquisition.
In response to these challenges, UGI has undergone a leadership overhaul, appointing Bob Flexon as CEO and Michael Sharp as President of AmeriGas. Flexon, a seasoned executive with extensive experience in the utility industry, previously led Dynegy through a successful turnaround. Sharp, who also has a background in asset optimization and operational restructuring, has been tasked with stabilizing AmeriGas. Their appointment signals a shift in strategy, where AmeriGas must now operate independently without additional equity injections from UGI. A key move has been securing a new $200 million revolver, eliminating restrictive debt-to-EBITDA covenants and giving management more flexibility to address the division's operational challenges. Management's guidance for AmeriGas acknowledges continued lower volumes in 2025, but with a clear focus on efficiency improvements and restoring customer confidence.
The broader UGI business remains robust, with its core natural gas and international LPG operations delivering steady growth. The Utilities segment has grown EBITDA from $230 million in 2019 to $400 million in 2024, while Midstream & Marketing has expanded from $170 million to $310 million, and the International LPG division has risen from $260 million to $320 million. These divisions collectively provide a strong earnings foundation, and UGI's overall valuation reflects a significant discount relative to its peers. Trading at just 10x earnings with a 5% dividend yield, UGI is one of the cheapest names in the regulated gas utility sector, further supported by its EV/EBITDA multiple of 7.8x. The stock price already seems to factor in continued weakness at AmeriGas, leaving room for upside if management successfully executes its turnaround plan.