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UGI Corporation has room to grow despite near-term headwinds, according to Wells Fargo. Analyst Sarah Akers upgraded the natural gas and propane distributor to overweight from equal weight and lowered her price target by $1 to $27. Akers’ new target suggests shares could still gain 19% in the next year from where shares closed Friday. “Given the various (propane and marketing) issues that UGI has faced, we think it’s prudent for our positive thesis to be based on a relatively conservative financial outlook,” Akers wrote in a note Monday. The stock has tumbled 39% so far in 2023. Wells Fargo’s outlook reflects higher interest rates on new debt at UGI International and UGI-owned AmeriGas Propane, the largest propane supplier in the United States, as well as lower near-term non-utility growth capex as UGI focuses on its balance sheet. The analyst also factored in a more pessimistic view of international propane volumes. While domestic propane production has reached near-record highs in recent years, U.S. inventory has struggled due to higher exports. The turnaround that Wells expects at UGI comes after the stock lost more than 19% in 2022. The bank’s outlook now assumes flat growth for UGI. UGI 5Y mountain UGI shares over the past five years The bank’s new price target takes into account structural headwinds but it believes the stock has fallen far enough that offers a “sufficiently attractive” valuation, Akers wrote. She said the firm’s positive investment thesis assumes that UGI will focus on organic gas infrastructure growth, capital and cost discipline and balance sheet improvement, with longer-term opportunities tied to de-carbonization. “Based on our recent conversations with UGI, we are comfortable that mgmt. is committed to weathering headwinds and improving the balance sheet without the issuance of external equity,” she wrote. Wells also sees additional upside potential to its outlook and price target, should UGI successfully reboot volumes and margins at recently acquired AmeriGas. — CNBC’s Michael Bloom contributed reporting.
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