UGI Rides on Strategic Investments & Cost Reduction Initiatives

UGI Corporation UGI is expanding operations through strategic acquisitions, which should drive its performance. UGI’s capital investments help in system upgradation by replacement of aging infrastructure.  

However, this Zacks Rank #3 (Hold) company faces competition from other clean sources and risks related to the seasonality of its business.

Factors Acting in Favor of UGI

UGI continues to make systematic capital investments to address the various capital projects, increase the safety and reliability of natural gas production and storage facilities, and replace the aging infrastructure for modernizing the system.

The company invested $236 million in the fiscal first quarter to further strengthen its operations, with 84% invested in the natural gas businesses. It plans to invest $800-$900 million in fiscal 2025 and $3.7-$4.1 billion through fiscal 2027 to strengthen its operations.

UGI is focused on sustainable cost savings and efficiencies to offset inflationary pressures, create more capital headroom and lower debts. This initiative will be carried out by streamlining centralized processes for effective operations and better cost control, leveraging technological improvements, digital innovation and increased efficiency.

The company aims to identify labor and non-labor sources to achieve sustainable cost savings. It successfully decreased operating and administrative expenses by nearly $33 million in the fiscal first quarter of 2025. UGI further expects to realize $70-$100 million in permanent savings by fiscal 2025.

Headwinds for UGI

UGI’s business is seasonal. The company’s results are significantly influenced by temperatures in its service territories, particularly during the heating season, from November to March. A decrease in the demand for energy products and services because of warmer-than-normal temperatures during winters might lower its profitability.

UGI’s energy products and services face competition from other energy sources, some of which are cheaper for an equivalent energy value.

UGI’s Stock Price Performance

In the past three months, shares of the company have risen 8.5% against the industry’s 6.3% decline.

Stocks to Consider

Some better-ranked stocks from the same industry are Atmos Energy Corp. ATO, Chesapeake Utilities CPK and Southwest Gas SWX, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ATO’s long-term (three to five year) earnings growth rate is 7.19%. The Zacks Consensus Estimate for ATO’s fiscal 2025 earnings per share (EPS) indicates a year-over-year increase of 5.1%.

The Zacks Consensus Estimate for CPK’s 2025 EPS indicates a 16.3% year-over-year improvement. The company delivered an average earnings surprise of 2.4% in the last four quarters.

SWX’s long-term earnings growth rate is 9.5%. In the last four quarters, the company delivered an average earnings surprise of 0.5%.

 

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This article originally published on Zacks Investment Research (zacks.com).

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