Suburban Propane Partners: How Much Left in the Tank?

I've recommended Suburban Propane Partners, L. P. (SPH) twice before. Once was in December 2005, when the stock was trading just below $25, and I predicted it would hit the high $20's over 2006 and give you a great dividend (the yield then was almost 10%). The stock has been climbing steadily ever since.

In August 2006, I recommended the company again, when it was trading around $34. I figured it would continue to rise to about $37 or so by the end of the year, and continue to deliver that dividend.

Well, the stock is now just hovering at near $42, and this is where I'm beginning to think you might want to be careful. I don't think this is a bad investment for someone who just wants the dividend -- the current yield is about 7% -- but I don't think this stock is going to keep climbing the way it has been. This isn't SPH's fault: This company has been run very well and its most recent results showed the company making a profit despite drastically reduced revenues caused by an unusually warm early winter. SPH's management made a concerted effort to move away from its less profitable divisions, and engaged in significant cost cutting, and so far it seems to have paid off.

But take care. Even if the company continues to be well run and continues to enjoy its reliable customer base, I don't see that much upside for the stock, or in this business as a whole. The fuel oil market is pretty much mature, and propane isn't likely to take off, and I think SPH will have trouble cutting costs much more without hurting its service.

Again, this is a solid, excellent company. But I'd only get in at this point if you're looking for a nice dividend and maybe a dollar or two of stock growth. There's always the chance of an acquisition, however!

Type of stock: A well run heating fuel business that has nearly doubled over the past fourteen months. I hope you all made money on this pick!

Price target: If you're looking for more than a dividend, don't buy SPH unless it drops below $40. I think it's unlikely to see much more growth -- this has been a magnificent run! But, if you see it drop to around $35 or less, I'd definitely grab it. You won't go wrong.

SPH 1-yr chart

Comments

[Sonia Mirza:]

Hilary - this was a fantastic call on your part - thank you.

While you say do not get in at certain levels unless you're just looking for the dividend or a $1-2 rise, would you suggest selling it vs holding?

2007 Apr 05 06:52 PM