The company formerly known as Lehigh Gas Partners LP (LGP) is now known as CrossAmerica Partners LP (CAPL). Lehigh Gas Partners changed its name to CrossAmerica Partners LP in October 2014. Therefore, any fundamental analysis of the company must focus on the current entity, CrossAmerica Partners LP (NYSE: CAPL).

Here is a long-form article in English on the fundamental analysis of the company, focusing on its current operations as CrossAmerica Partners LP.

Fundamental Stock Analysis of CrossAmerica Partners LP (Formerly Lehigh Gas Partners LP)

Introduction to CrossAmerica Partners LP

CrossAmerica Partners LP (NYSE: CAPL) is a prominent Master Limited Partnership (MLP) operating within the wholesale distribution and retail site ownership/leasing sectors of the U.S. motor fuel market. The company was originally formed as Lehigh Gas Partners LP (LGP) in 2012, and subsequently rebranded to CrossAmerica Partners LP in October 2014.

As an MLP, CAPL's primary business model is built around generating stable, fee-based cash flows often used to pay quarterly distributions to its unitholders. Investors in MLPs like CAPL typically focus heavily on distribution yield, coverage ratio, and the stability and growth of its underlying business operations, which are central to a robust fundamental analysis.

Business Model and Industry Analysis

CrossAmerica Partners operates in two main segments:

Wholesale: This is the core business, involving the wholesale distribution of motor fuels (gasoline and diesel) under various major oil brands (e.g., ExxonMobil, Shell, Valero) to a vast network of sites. The wholesale business often operates on a "rack-plus" pricing model, where the margin is largely fixed as a markup over the cost of fuel at the terminal, insulating the company somewhat from the volatility of crude oil prices. This model emphasizes volume stability over price speculation.
Retail Site Operations: CAPL owns or leases real estate used in the retail distribution of motor fuels, which it then leases or sub-leases to third-party operators or its own affiliates (such as the former CST Brands, now part of Alimentation Couche-Tard). Revenue in this segment is primarily generated through rental income and often includes fixed monthly payments under long-term contracts, providing another layer of stability.

Industry Environment

CAPL operates in the highly competitive and fragmented U.S. motor fuel distribution market.

Competitive Landscape: Competition comes from large integrated oil companies, regional distributors, and other MLPs. CAPL’s scale, brand affiliations, and geographic footprint across multiple states provide a competitive advantage.
Macroeconomic Factors: The demand for motor fuel is relatively inelastic in the short term, but is affected by economic activity, fuel efficiency, and the long-term rise of electric vehicles. However, the wholesale business model generally provides stability, as margins are fixed per gallon, not as a percentage of the fuel price.
MLP Structure: As an MLP, CAPL is required to distribute most of its available cash flow to unitholders, making its financial health directly tied to its ability to maintain and grow its distributable cash flow (DCF).

Financial Health and Performance Metrics

A fundamental analysis of an MLP focuses on several key financial metrics beyond traditional GAAP earnings.

Distribution Coverage and Yield

The sustainability of an MLP's distribution is paramount. Investors scrutinize the Distribution Coverage Ratio (DCR), which is calculated as Distributable Cash Flow (DCF) divided by total cash distributions paid.

Target DCR: A ratio above 1.0x is generally considered sustainable, indicating that the partnership is generating enough cash to cover its payout. A ratio consistently above 1.2x suggests a strong buffer and potential for future distribution growth.
Yield: Due to the MLP structure, CAPL typically offers a relatively high distribution yield, which can be attractive to income-focused investors. However, a yield that is excessively high relative to peers may signal underlying risks to the distribution's sustainability.

Revenue and Gross Profit Stability

Given the nature of the wholesale business, the most meaningful metric is gross profit or margin per gallon, rather than total revenue, which can be heavily skewed by the volatile commodity price of fuel.

Gross Margin: Stable or growing wholesale gross margins per gallon indicate operational efficiency and strong contract terms.
Rental Income: Consistent and long-term rental income from the retail site segment adds significant stability to overall cash flow, acting as a crucial non-fuel-related income stream.

Leverage and Balance Sheet Strength

As a capital-intensive business that relies on acquisitions for growth, a review of CAPL's debt load is essential.

Total Debt/EBITDA Ratio: This is a key measure of leverage for MLPs. A ratio generally below 4.0x to 5.0x is often considered manageable for the sector, though this varies by market cycle. Higher leverage increases the financial risk, especially in a rising interest rate environment.
Liquidity: Assessing the company’s current cash position and the availability under its revolving credit facilities is important for ensuring it has the capital necessary for day-to-day operations and opportunistic acquisitions.

Growth Strategy and Management

CAPL’s growth historically has been driven by a consistent strategy of acquisitions and "drop-downs."

Acquisition Strategy

The partnership has a track record of acquiring wholesale fuel supply contracts and retail sites from independent operators and strategic partners. This inorganic growth strategy is vital for increasing the fuel distribution volume, which is the primary driver of DCF growth.

Relationship with Parent/Sponsor

The relationship with its controlling partner (currently a subsidiary of Alimentation Couche-Tard) is a critical component of its growth strategy. This relationship historically provided a "drop-down pipeline," where the sponsor sells assets (fuel distribution contracts, real estate) to CAPL. These drop-down acquisitions are predictable and can be immediately accretive, leading to reliable DCF and distribution growth. The stability of this relationship and the quality of the remaining assets in the pipeline are major considerations.

Management Quality

Evaluating management’s ability to execute the growth strategy, manage debt, and maintain a competitive cost of capital is crucial. Consistent fulfillment of distribution promises, strategic alignment of acquisitions, and transparent financial reporting are indicators of strong management.

Valuation and Conclusion

Traditional valuation metrics like the Price-to-Earnings (P/E) ratio are often less informative for MLPs due to non-cash depreciation and amortization charges. Instead, investors focus on Distribution Yield and Enterprise Value-to-EBITDA (EV/EBITDA).

Distribution Yield: Comparing CAPL's yield to that of its MLP peers can reveal if the stock is undervalued (higher yield) or overvalued (lower yield), assuming comparable risk.
EV/EBITDA: This metric provides a cleaner comparative valuation of the partnership's total value relative to its operating cash flow, independent of capital structure differences (like debt).

Conclusion for Fundamental Investors

A fundamental analysis of CrossAmerica Partners LP (LGP's successor) suggests a stock primarily suited for income-oriented investors seeking a high, stable distribution. The strength of the investment lies in the stability provided by:

Fee-based, volume-driven wholesale margins.
Long-term, predictable rental income.
The potential for accretive drop-down acquisitions from its strategic sponsor.

The main risks involve high leverage (if debt metrics deteriorate) and the long-term structural challenge of declining motor fuel demand due to increasing electric vehicle adoption, which necessitates a continuous acquisition strategy to offset natural volume declines. Investors should regularly monitor the Distribution Coverage Ratio and the pace of accretive acquisitions to confirm the ongoing health and growth of the partnership.

WorldReview1989

Wednesday, October 1, 2025