SUBURBAN PROPANE PARTNERS LP (SPH) stock intrinsic value fair value estimate & owner earnings analysis

Suburban Propane Partners is a master limited partnership. Investors own 'common units' rather than shares and receive quarterly cash distributions rather than dividends. Economically a unit works like a share of common stock, and we have valued it that way. Suburban is the third-largest retail propane marketer in the United States. It delivers propane, heating oil and related products to about 1.0 million residential, commercial and industrial customers, many of them rural homes without access to piped natural gas. It also owns a small renewable natural gas business, which makes pipeline gas from dairy manure and food waste. That business has a facility in Stanfield, Arizona, a new digester in upstate New York that started up in mid-2026, and a Columbus, Ohio facility expected to start operating in late 2026. The business is mature and depends heavily on the weather. Most of the year's cash is earned in the five winter months. A warm winter, such as fiscal 2024, can cut a year's cash flow by a quarter or more. Over time the customer base also shrinks slowly, because homes convert to natural gas or electric heat and use less fuel as they become more efficient. Suburban has offset this for years with small 'bolt-on' purchases of local propane dealers and with steady price increases per gallon. The October 2025 purchases of two California retailers for $24 million are the latest examples. How we measured earnings. We start from operating cash flow. We remove swings in working capital, charge unit-based pay as a real expense, and deduct the capital spending needed to keep the business running. To separate upkeep spending from growth spending, we used a consistent rule rather than the company's own split. Capital spending averaged about 3.2% of revenue over ten years. Only spending tied to actual revenue growth is treated as growth spending, and everything else is treated as upkeep. This charges more than the company's own maintenance figure, especially in fiscal 2024 and 2025, when large amounts went into the renewable gas plants that have not yet shown a return. On this basis, owner earnings over fiscal 2016 to 2025 ranged from $1.62 to $3.53 per unit. These figures are not comparable with our previous estimate, which used the company's own split. Write-downs of Suburban's investments in Oberon Fuels and Independence Hydrogen, about $30 million in fiscal 2025, were non-cash and are not deducted from earnings. Those ventures were a failed diversification, and we give them no value in any case. Oberon itself has disclosed substantial doubt about its ability to continue operating. That concerns only the investee, not Suburban. To value the business before its lenders, we add back the roughly $60 to $77 million of cash interest Suburban pays each year. Measured this way, the business generated a median of about $222 million a year over fiscal 2016 to 2025. That ten-year window covers both very warm winters (2016, 2024) and cold ones (2018, 2021), so it includes the full weather cycle. We anchor on about $225 million, or roughly $3.35 per unit. Owner earnings rose 36% in fiscal 2025 as the weather recovered from the record-warm fiscal 2024. We do not treat that rebound as growth. Our base case starts below fiscal 2025's level, and the nine months to June 2026 support this: adjusted cash earnings were essentially flat, retail gallons rose under 1%, and April 2026 was the second-warmest on record. Base case (about $27 per unit). The core propane business declines about 1% a year in real terms. Customer losses are only partly offset by the acquisition program, which has spent between nothing and $130 million a year on dealers over the past decade, mostly funded from cash flow. The two renewable gas plants now coming online add about $5 million a year, a figure limited to capacity that is already built. After year ten, the business keeps shrinking about 2% a year. What sustains it is a stubborn core of rural, off-grid customers with no practical alternative fuel, which is a real and lasting feature of propane distribution. On this path the business is worth about $3.0 billion. Just over half of that comes from the first ten years. Net debt is about $1.21 billion. That figure includes a credit for the $650 million of 5.0% notes due 2031, which cost less than current long-term rates, and a small charge for the new 6.5% notes due 2035. That leaves about $1.82 billion, or roughly $27 per unit on about 67.3 million units. Bear case (about $14 per unit). Customer losses run about 2.5% a year and acquisitions no longer offset them. Two back-to-back warm winters cut cash flow by 20% each year, as fiscal 2012 and fiscal 2024 did, so we treat this as a matter of when, not if. When the 2031 notes come due, they are refinanced about 3 percentage points higher for a decade. That costs about $107 million in today's money. The partnership also sells about 4 million more units to protect its balance sheet, as it already does in small amounts through its at-the-market program. Even at the low point, cash flow before interest of about $163 million still covers an interest bill of roughly $75 to $95 million comfortably. The business would be worth about $2.33 billion, debt plus the refinancing penalty comes to about $1.32 billion, and about $1.01 billion, or roughly $14 per unit, remains. In this case the distribution would very likely be cut. Bull case (about $36 per unit). Pricing and acquisitions fully offset customer losses, so cash flow holds flat around $225 million. All three renewable gas facilities run at full capacity and add about $12 million a year. After year ten, the business declines only about 1% a year. We did not credit any hydrogen or renewable-propane ventures, new markets or market-share gains, because none of these has a demonstrated record. The business would be worth about $3.6 billion against about $1.21 billion of net debt, leaving about $2.4 billion, or roughly $36 per unit. Debt. Since our previous analysis, Suburban sold $350 million of 6.5% notes due 2035 in December 2025 and used the money to repay the 5.875% notes due March 2027. That removed the near-term maturity that previously hung over the balance sheet, and it is a clear improvement. Debt at June 2026 was about $1.22 billion: $650 million of 5.0% notes due 2031, $350 million of 6.5% notes due 2035, about $80 million of 5.5% green bonds due 2028 to 2033, and the rest drawn on the $500 million revolving credit line. Leverage was 4.35 times trailing cash earnings. That is above management's own 3.5 to 4.0 times target but comfortably inside the 5.75 times limit in the credit agreement. Margin-of-safety price. We are reasonably confident in the earnings level. It rests on ten years of reported cash flow through warm and cold winters, and the business is simple. The plausible worst outcome is a run of warm winters that coincides with the 2031 refinancing while customer losses speed up. Debt is the main thing that makes that dangerous: about $1.2 billion against roughly $225 million of normal cash flow. Still, apart from the revolving credit line (due by March 2029) and small green-bond installments starting in 2028, no maturity falls before 2031, the covenant leaves room, and the assets are hard ones (tanks, trucks and a customer list) that rivals buy steadily. The things we are most likely to be wrong about are how fast customers leave and what rate the 2031 notes are refinanced at. If both go against our estimates, the units are worth around the $14 bear value. The partnership pays $1.30 a year in distributions, and the bear case would probably reduce that. At $14, the distribution yield is above 9% while waiting. A recovery to something below our base value over an assumed three-to-four-year holding period, at about $22 to $24, would together with the distributions imply about 20% a year. A price at or below the bear value also means the bad case is largely reflected in the price. The margin-of-safety price is $14.