Lehigh Gas Partners (LGP) is a master limited partnership that "is engaged in the wholesale distribution of motor fuels to sub-wholesalers, independent dealers, lessee dealers, and others; and retail distribution of motor fuels to end customers at commission sites in the United States. The company operates through two segments, Wholesale and Retail. It primarily offers gasoline and diesel fuels. The company also owns and leases real estate used in the retail distribution of motor fuels, as well as provides maintenance and other services to lessee dealers and other customers. Lehigh Gas GP LLC operates as the general partner of the company. The company was founded in 1992 and is headquartered in Allentown, Pennsylvania."
Lehigh Gas is a growth company. From fiscal year 2012 to fiscal year 2013, operating income nearly doubled from $14.86 million to $28.5 million. From December 2011 to December 2013, reported gross profit increased from $49.65 million to $70.5 million. Assets have likewise increased largely, while liabilities are trending downward. In the last fiscal year, cash flow has more than tripled. In May, a director of Lehigh Gas, John F. Malloy, directly purchased 46,770 shares while the stock was trading in the high $26 range. Also, as a master limited partnership, LGP has the tax advantages of a limited partnership (the partnership does not pay taxes from the profit -- the money is only taxed when unitholders receive distributions) with the liquidity of a publicly traded company. The S&P MLP Index has outperformed the S&P 500 in the last three fiscal years.
Not only is LGP growing fundamentally through reported earnings growth, reduced debt, and an increase in assets, but the company is spreading its roots into more states through strategic acquisitions. Lehigh Gas, run by CEO Joseph Topper, completed the acquisition of Wholesale Motor Fuel Supply Contracts and Motor Fuel Stations in the Chicago Market on May 21, 2014, and announced the acquisition of Petroleum Marketers, Inc. for $61M on May 1, 2014, according to recent company press releases. Prior to the acquisitions in FY 2012 and 2013 and its IPO, the company was heavily concentrated in Pennsylvania, N.J., N.Y., and New England, but now has a growing footprint further south into Virginia, Tennessee, and Florida. Lehigh Gas currently provides fuel to more than 500 motor fuel locations and supply fuel to more than 200 dealer locations in 13 states.
At its current price per share, LGP has been largely attractive to analysts and experts. This week and last week, the company maintained a rating of 1.4 and 1.3, respectively, on a scale of Strong Buy (1.0) to Sell (5.0). The mean price target is $31.40, the median price target is $32.00, the high price target is $33.00, and the low price target is $30.00 according to the five analysts cited on Yahoo Finance. 75% of analysts from firms Baird and Raymond James indicate that the stock is rated "strong buy" and 25% of analysts rate it a "buy." The one negative rating came when Zacks downgraded LGP from "neutral" to "underperform" recently because of the missed earnings from the previous quarter. This downgrade provided a sale for the stock as the share price fell briefly.
Acquisitions and yearly price targets take time and strong consistent quarterly growth to prove useful to an investor. Why buy Lehigh Gas Partners now? In the past two fiscal years the summer months are the most profitable for LGP and similar fuel distribution companies. This is a possible indicator that the upcoming quarter could bring higher earnings, given that consumer spending is up in 2014 over 2013 and 2012, and LGP's footprint is considerably larger this year. This summer promises to deliver similarly strong sales, and perhaps even stronger than the historical trend. Last year when Q2 earnings were announced, investors saw the share price and buy volume increase in tandem.
More importantly, the MLP distribution paid out to investors on May 29, 2014, amounted to $.5125 per share, which could be a bonus to any investor who enters a position before the next quarter closes. Lastly, LGP currently has a high annual payout yield at 2.05, or 7.94%. This is a strong yield, particularly in the context of the recent dip in share price. As the price dips due to summertime profit takers, sell volume, or negative analyst downgrades due to a poor quarter, the entry becomes more appealing for investors who are looking to lock in a higher yield and add a cash distribution position to their portfolio.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.