UGI Corp.: It's a Gas, Gas, Gas

I'm borrowing my title from the Rolling Stones. UGI Corporation deserves that description, as it handles all forms of natural gas, both here at home plus outside the US. UGI was founded in 1882, paid dividends continuously since 1885 and listed on the New York Stock Exchange in 1929. Like most stocks, UGI took a big hit last March, but has been in recovery mode since. The nature of UGI's business made it relatively impervious to the Covid crisis. Earning per share in fiscal 2020 -- ended Sept. 30 -- came in ahead of the previous year. Value Line sees UGI's fiscal 2021 improving to $3.00 per share, a new all-time high. Management suggests that number is about right on adjusted earnings for the fiscal year in progress. Pre-Covid-19, from 2012 through 2019, UGI carried an average multiple of 18.3-times, accompanied by around 2.55% in yield. As of Friday, those metrics sat at just around 12-times this year's estimate, along with a generous 3.68% current yield. Even a partial regression to the mean valuation supports an end of September 2021 goal price of at least $52.50. Hitting that modest target would deliver just shy of a 50% total return in under a year. That scenario is not far-fetched. UGI topped out from $52.00 - $59.30 each year from 2017 - 2019 on EPS less than expected for this year, and lower absolute dividends than today's. Yahoo Finance is bit more conservative in its assessment for UGI's year-ahead prospects. It calls for $45.50 by this time next year, just 15.2-times expected EPS. Even so, you'd still see 30.5% in total return on this pretty low-risk name. Independent research house Morningstar has no analyst coverage on UGI right now. Its computer-generated view, however, also calls UGI undervalued. Simply owning UGI at its current quote appears quite tempting. Option-minded traders could also establish an ultra-conservative July 16, 2021 expiration date $35 strike price buy/write combination using UGI. Why do I call this ultra-conservative? The best-case scenario would be achieved if UGI goes, up, sideways or even down a bit from where it sits right now. Here's what the actual trades on a 100-share, one call and one-put combination would look like if executed near the close on Friday with UGI at $35.88. Any close of $35 or better will trigger the results described next. 27.7% over just 238-days, on a stock that didn't even have to go up, would translate into 42.5% annualized. There can be no guarantee that UGI won't fall back to south of $35. Barring a major collapse, though, even that scenario appears less than scary. You'd end up with a double-sized position in UGI, but at the very low net cost of $31.10 per share. Any decline of less than 13.3% would allow for immediate liquidation for at least a small gain. Future stock market action can never be assured. We can know for sure, though, that owning UGI at $31.10 would have been a winning position during 61 of the most recent 64 months, as shown below. UGI is a solid, good-yielding stock with excellent upside potential and a very predictable income stream. Buy some shares, sell some puts or consider setting up buy/write combinations at $35 or $40 strike prices out to Jul. 16, 2021. I have no positions in UGI at the time of writing, but I intend to buy shares and sell puts on UGI this week.

UGI Corp.: It's a Gas, Gas, Gas

Here we'll look at how to play UGI Corp., which handles all forms of natural gas, and was founded in 1882 and paid dividends continuously since 1885.

Columnist Conversation

Doing Some Buying in Stocks Under $10

Tuesday Morning Fibocall for 1/18/2022

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.