Ohio And New York RNG Facilities Will Open Cleaner Markets

Key Takeaways

• Growth strategies center on expanding renewable fuel capacity and leveraging regulatory incentives, positioning the company to benefit from cleaner energy trends and higher-margin opportunities.
  
• Market share and earnings stability are reinforced by targeted acquisitions, operational improvements, and enduring demand for core propane services in rural and off-grid areas.
  
• Heavy reliance on volatile propane demand, high leverage, and slow diversification expose the company to cost inflation, policy risks, and long-term market contraction threats.

Catalysts

Through its subsidiaries, engages in the retail marketing and distribution of propane, renewable propane, fuel oil, and refined fuels in the United States.

• Expanding renewable natural gas (RNG) capacity through ongoing upgrades and new facilities in Columbus, Ohio and Upstate New York positions the company to access higher-growth, lower-carbon markets and capitalize on a shift in demand toward cleaner fuels, which is likely to support future revenue and margin growth once projects are operational.
  
• Regulatory developments, including amendments to California's LCFS program and anticipated finalization of 45Z PTC tax credit rules, provide potential for higher realized prices and tax credit monetization on renewable fuels, which could positively impact revenues and net margins.
  
• Strategic M&A activity-such as the integration of the recently acquired New Mexico propane business-coupled with an active pipeline of deals, strengthens market share in fragmented regions and should drive revenue growth alongside potential operating margin improvements through scale synergies.
  
• Operational initiatives to stabilize and grow RNG output (e.g., efficiency projects, enhanced safety protocols, and improved feedstock management) are expected to yield improved long-term facility performance, contributing to higher future EBITDA and earnings stability.
  
• Continued resilience in core propane demand driven by: rural population stability, persistent electrification hurdles in off-grid geographies, and episodic demand boosts (e.g., from weather events) sustains the company's stable cash flows and supports consistent distributions.

Suburban Propane Partners Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Suburban Propane Partners's revenue will grow by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 10.0% in 3 years time.
• Analysts expect earnings to reach $148.5 million (and earnings per share of $2.07) by about August 2028, up from $97.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2028 earnings, down from 12.6x today. This future PE is lower than the current PE for the US Gas Utilities industry at 18.1x.
• Analysts expect the number of shares outstanding to grow by 2.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.28%, as per the Simply Wall St company report.

Suburban Propane Partners Future Earnings Per Share Growth

Risks

• The company's dependence on weather-driven, seasonal demand for propane (with significant impact from unseasonably warm temperatures and commodity price volatility) exposes revenues and EBITDA to ongoing unpredictability, undermining long-term earnings stability and cash flow visibility.
  
• Expansion into renewable natural gas (RNG) introduces exposure to policy and credit pricing risk, as demonstrated by sustained low California LCFS credit prices and a 21% year-over-year drop in federal D3 RINs, which may continue to pressure net margins and hinder future profitability from new energy initiatives.
  
• Management highlights inflationary pressures on operating and G&A expenses (with payroll and benefit costs offset only temporarily by nonrecurring insurance recoveries), indicating that persistent cost inflation could steadily erode operating margins in the absence of sustained volume or price growth.
  
• The company maintains a relatively high leverage profile (consolidated leverage ratio of 4.33x), and although recent debt reduction efforts are noted, elevated debt levels combined with a high distribution payout may restrict future capital investments for diversification, modernization, or growth, risking stagnation of earnings and distributable cash flow.
  
• The business remains heavily reliant on its core propane distribution (with RNG and hydrogen investments not yet contributing meaningfully), while secular trends like electrification and urbanization threaten to erode its rural customer base, shrink the addressable market, and suppress topline revenue growth over the long term.

Valuation

• The analysts have a consensus price target of $17.0 for Suburban Propane Partners based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $148.5 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $18.71, the analyst price target of $17.0 is 10.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.