TD commentsEvent We are updating our estimates in advance of Superior's Q4/23 results, and introducing our 2025 estimates.
Impact: SLIGHTLY POSITIVE
Q4/23 Preview:
Recall that alongside our Q3/23 preview in October (full report), we introduced our reduced estimates with an expectation that a strong El Nio weather pattern would negatively impact propane demand. Although this largely played out across Superior's U.S. and Canadian retail footprint, we now believe that wholesale volumes were not as impacted by this weather event. In this context, we are estimating Q4/23 EBITDA of $212.5 million (previous estimate: $204.7 million; consensus: $222.8 million). This implies a full-year EBITDA estimate of $642.2 million, below the midpoint of management's $630 million to $670 million guidance range.
We expect that 2024 guidance will be provided with Q4/23 results. We note that the prior management team had provided a preliminary 2024 EBITDA from Operations target range of $700.0 million to $750.0 million (TD Estimate: $722.9 million), which excludes corporate costs.
Superior will report Q4/23 results on February 22, after market close.
Estimate Changes: Our 2023 and 2024 EBITDA estimates increase to $642.2 million (+1%) and $690.9 million (+2%), respectively. With this report, we are introducing our 2025 EBITDA estimate of $722.6 million that represents 4.6% yearover-year growth that is driven by a return to more normalized weather patterns and features continued growth of the Certarus business.
TD Investment Conclusion
With the El Nio impact increasingly contemplated in estimates and valuation, we believe that the sentiment on Superior Plus may reach an inflection point. Specifically, we believe Superior's core propane distribution business offers investors a resilient base of recurring free-cash-flow generation that will allow the company to continue to grow the early-stage, high-growth Certarus business and offers fuel consumers an economic and environmental win-win, all while reducing leverage ratios, repurchasing shares, and maintaining the dividend. We also believe that initiatives of the new management team to optimize the business are still in early stages and represent potential upside to estimates and overall sentiment. With this preview, we are maintaining our BUY rating and $13.50 target price.