We came across a bullish thesis on UGI Corporation (UGI) on Substack by Investing 501. In this article, we will summarize the bulls’ thesis on UGI. UGI Corporation (UGI)’s share was trading at $33.23 as of Feb 27th. UGI’s trailing and forward P/E were 13.03 and 11.15 respectively according to Yahoo Finance.
The sun rising over a sprawling network of oil & gas pipelines near Midland, Texas.
UGI Corporation is at a pivotal moment following years of struggle with its AmeriGas acquisition. The company, a diversified energy provider with operations across natural gas utilities, midstream and marketing, international LPG, and AmeriGas, has seen its stock underperform due to the declining performance of its propane business. Acquired in 2019 for $4.6 billion, AmeriGas was expected to enhance UGI’s earnings, but instead, it has become a drag on the company’s financials. AmeriGas EBITDA has declined from $584 million in 2019 to $320 million in 2024, with EBITDA margins contracting from 21.8% to 14.1% over the same period. The division has also experienced a 30% drop in retail gallons sold, attributed to operational missteps, poor customer service, and unseasonably warm weather. These struggles have led UGI to take $850 million in goodwill impairments over the past two years, nearly 50% of the initial goodwill assigned to the acquisition.
In response to these challenges, UGI has undergone a leadership overhaul, appointing Bob Flexon as CEO and Michael Sharp as President of AmeriGas. Flexon, a seasoned executive with extensive experience in the utility industry, previously led Dynegy through a successful turnaround. Sharp, who also has a background in asset optimization and operational restructuring, has been tasked with stabilizing AmeriGas. Their appointment signals a shift in strategy, where AmeriGas must now operate independently without additional equity injections from UGI. A key move has been securing a new $200 million revolver, eliminating restrictive debt-to-EBITDA covenants and giving management more flexibility to address the division’s operational challenges. Management’s guidance for AmeriGas acknowledges continued lower volumes in 2025, but with a clear focus on efficiency improvements and restoring customer confidence.
The broader UGI business remains robust, with its core natural gas and international LPG operations delivering steady growth. The Utilities segment has grown EBITDA from $230 million in 2019 to $400 million in 2024, while Midstream & Marketing has expanded from $170 million to $310 million, and the International LPG division has risen from $260 million to $320 million. These divisions collectively provide a strong earnings foundation, and UGI’s overall valuation reflects a significant discount relative to its peers. Trading at just 10x earnings with a 5% dividend yield, UGI is one of the cheapest names in the regulated gas utility sector, further supported by its EV/EBITDA multiple of 7.8x. The stock price already seems to factor in continued weakness at AmeriGas, leaving room for upside if management successfully executes its turnaround plan.
Given the strategic direction of the company, investors believe a sale of AmeriGas is a likely scenario. UGI’s leadership appears committed to focusing on its high-performing natural gas and international LPG businesses, and divesting AmeriGas would remove a significant overhang from the stock. While an outright sale may take time, even signs of operational stabilization could prompt a re-rating. At current levels, the stock offers an asymmetric risk/reward profile, with a potential 30-50% upside once AmeriGas is either fixed or sold. A revaluation to a 3% dividend yield or 15x EPS of $2.90 per share would justify such a move. Furthermore, UGI’s other assets are attractive acquisition targets, though potential buyers would likely wait for AmeriGas’s situation to be resolved before making a move.
The mispricing of UGI’s stock is largely a result of AmeriGas overshadowing the strength of its other divisions. This presents an opportunity for investors willing to bet on management’s ability to either turn the business around or offload it to a buyer. The new leadership team’s track record suggests they are well-equipped for the challenge, and with financial flexibility now in place, they have the tools to make meaningful changes. Meanwhile, the rest of UGI’s portfolio continues to generate solid cash flow, supporting the company’s dividend and providing downside protection. If management successfully executes its plan, UGI shareholders stand to benefit from a significant rerating, making this a compelling investment opportunity at current levels.
UGI Corporation (UGI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held UGI at the end of the third quarter which was 26 in the previous quarter. While we acknowledge the risk and potential of UGI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UGI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.