UGI Corp. Appears Full of Energy

One of my favorite scenarios when buying stocks is finding shares with huge gains in embedded value, which currently fail to reflect that much higher intrinsic worth. Energy supplier UGI Corp. meets that criteria right now. The table below details its results since fiscal 2013, which ended Sept. 30, 2013, through what is expected for fiscal 2023, which ends Sept. 30. Per share cash flow will likely have risen by almost 43%. Earnings per share are expected to be 75.5% higher. Book Value is up about 66%. Annual dividends have more than doubled. Amazingly, though, UGI's current quote is lower on an absolute basis than where it traded exactly 10 years earlier. What Is the Stock Worth? Over the past decade UGI's average multiple ran 17.2-times, accompanied by around 2.71% in current yield. When it was in favor on Wall Street (red-starred periods below) if sometimes fetched north of 20-times earnings. When UGI was cheaply valued and primed for big upturns from 2013 through 2016 (green-starred moments) it bottomed at from 13.8-times to 15.4-times earnings. Traders willing to buy at the Covid-panic low were rewarded with outstanding gains within 17-months in addition to pocketing a 6% yield. As of Monday, UGI was offered at the second lowest price-to-earnings of the past 10 years, while rewarding today's buyers with almost 5.7% in yield just for holding. Fiscal 2023 was likely a slightly down year for UGI but fiscal 2024 and beyond is on track to show record results. UGI now sells for under 8.3-times its forward estimate for the year ending Sept. 30, 2024. That is almost as favorable as what it fetched at its Covid low. Apply a normalized 17.2 multiple to next year's estimate and UGI could reach north of $54 within 15-months. Assume a more conservative e 16 P/E and you could still envision $50 - $51 by then. That translates to a potential total return of 95.5% or so at a $50 goal. I am not alone ion seeing the value here. Independent research from Morningstar calls present-day, as opposed to year-ahead, fair value as $35.36. The chart below shows that the price to fair value ratio is close to UGI's previous best buying opportunity during the spring of 2020. Yahoo Finance labels UGI as undervalued. It 12-month goal price appears overly conservative as it implies an end of fiscal 2024 P/E of just 11.93-times trailing earnings. Even so, reaching that even modest target would produce a solid 50% total return by this time next summer. Fast Graphs says 15.34-times is a more sustainable P/E for UGI than its historical number. Applying just a 15 multiple, though supports a $47.55 goal by October of 2024 and $51.30 at the end of fiscal 2025. In my world either of those results would be quite satisfactory while accompanied by a nearly 6% yield. Option premiums are not especially juicy on UGI due to its subdued implied volatility. Buying shares outright is the better play if you have cash to deploy. Shorting Jan. 19, 2024 expiration date naked puts at either $25 or $30 strikes is a decent way to grab some premium dollars while also getting a reasonable margin of safety versus outright buying. Actual pricing on those, with UGI at $26.34, is shown below. If you like the idea of owning UGI at $26.34 you should love the worst-case possibility of being forced to buy more at from 2.8% to 10.9% lower enter points. The previous decade's growth in UGI's true value is far from reflected in the stock price now. Buy some shares, sell some puts, or consider doing both to position yourself to capture solid gains and nice yield when the public decides UGI is worth owning again. My guess is that attitude change will not take too long. UGI peaked at $43.20 year to date in 2023. It topped out between $47.00 and $59.30 during each of the seven consecutive calendar years stretching from 2016 through 2022. Record results are on tap starting with the new year beginning Oct. 1, 2023. The positive year-over-year numbers that should start unfolding soon will act as the catalyst to propel UGI much higher. Still not convinced, yet? UGI's CEO couldn't resist buying almost $100 million worth of shares on the open market at $27.98 per share back on May 24. Nobody knows the firm's value better than he does. We are now able to buy in cheaper than he did.

UGI Corp. Appears Full of Energy

You can get more and pay less now for UGI than its quote from a decade ago.

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