Energy Transfer LP’s (ET) core operations include complementary natural gas midstream, intrastate, and interstate transportation and storage assets; crude oil, natural gas liquids (NGL), refined product transportation assets; and NGL fractionation.

The company owns and operates more than 11,600 miles of natural gas transportation pipeline, three natural gas storage facilities in Texas and Oklahoma, and 19,830 miles of interstate natural gas pipeline.

ET reported strong second-quarter 2022 results. During the quarter, the company achieved higher transportation volumes across all its segments and a full quarter contribution from the Enable Midstream assets.

Given its solid second-quarter results and continued increase in demand, the company now expects adjusted EBITDA for the current fiscal year to be between $12.6 billion and $12.8 billion, up from the previously guided range of $12.2 billion to $12.6 billion.

On October 20, ET announced a quarterly cash distribution of $0.4609375 per Series C Preferred Unit, $0.4765625 per Series D Preferred Unit, and $0.4750000 per Series E Preferred Unit, payable on November 15, 2022. ET distributes $0.92 annually, translating to a 7.61% yield. Its four-year average dividend yield is 10.44%.

On August 24, ET announced that its subsidiary, Energy Transfer LNG Export, LLC, has entered into a 20-year LNG Sale and Purchase Agreement (SPA) with Shell NA LNG LLC related to its Lake Charles LNG project. Under the agreement, Energy Transfer LNG will supply Shell with 2.1 million tonnes of LNG per annum (mtpa). This SPA is expected to boost the company’s revenue streams.

On August 16, ET completed the sale of its 51% stake in Energy Transfer Canada ULC to a joint venture of Pembina Pipeline Corporation and global infrastructure funds managed by KKR. The sale of the assets might enable the company to deleverage its balance sheet and redeploy capital within its operations across the United States.

Furthermore, in the same month, the company agreed to acquire Woodford Express, LLC, a Mid-Continent gas gathering and processing system, for approximately $485 million. The system has 450 MMcf per day of cryogenic gas processing and treating capacity and over 200 miles of gathering and transportation lines connected to Energy Transfer’s pipeline network.

ET has gained 38.6% year-to-date and 20.9% over the past year to close the last trading session at $12.07. The stock is currently trading just 3.4% below its 52-week high of $12.49, which it hit on August 24, 2022.

Here is what could influence ET’s performance in the upcoming months:

Solid Financials

In the fiscal 2022 second quarter ended June 30, 2022, ET’s revenue increased 71.8% year-over-year to $25.95 billion. Its operating income grew 32.3% year-over-year to $2.11 billion. The company's adjusted EBITDA amounted to $3.23 billion, up 23.4% year-over-year.

Furthermore, the company’s net income attributable to partners and net income per unit came in at $1.33 billion and $0.39, registering increases of 111.8% and 95% from the prior-year period, respectively. Also, distributable cash flow improved 30.9% from the year-ago value to $2.31 billion.

Favorable Analyst Estimates

Analysts expect ET’s revenue for the fiscal 2022 third quarter (ended September 2022) to come in at $24.04 billion, indicating an increase of 44.3% year-over-year. The consensus EPS estimate of $0.37 for the to-be-reported quarter indicates an 85% year-over-year increase.

In addition, the company’s revenue for the fiscal year 2022 (ending December 2022) is expected to rise 39.9% year-over-year to $94.28 billion.

Discounted Valuation

In terms of forward P/E, ET is currently trading at 7.82x, 9.8% lower than the industry average of 8.66x. The stock’s forward EV/Sales multiple of 1.07 is 42.4% lower than the industry average of 1.85. Likewise, its forward Price/Sales multiple of 0.40 compares with the industry average of 1.34.

Furthermore, in terms of forward Price/Book, ET is currently trading at 1.07x, 42.9% lower than the industry average of 1.88x. The stock’s forward Price/Cash Flow multiple of 3.92 is 6.6% lower than the industry average of 4.20.

Consensus Rating and Price Target Indicate Potential Upside

Each of the six Wall Street analysts that rated ET rated it Buy. The 12-month median price target of $15.50 indicates a 28.4% potential upside. The price targets range from a low of $14.00 to a high of $17.00.

POWR Ratings Show Promise

ET has an overall B rating, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has a grade of A for Momentum. This is justified as it trades above its 50-day and 200-day moving averages of $11.66 and $10.85, respectively.

In addition, it has a B grade for Value, consistent with its lower-than-industry valuation metrics.

ET is ranked #26 out of 94 stocks in the B-rated Energy-Oil & Gas industry.

Beyond what I have stated above, we have also given ET grades for Sentiment, Growth, Quality, and Stability. Get access to all ET ratings here.

Bottom Line

ET’s revenue and net income have grown at 17% and 36% CAGRs over the past five years. Moreover, the company reported robust financials in its last reported quarter, driven by sustained energy demand. ET is currently trading close to its 52-week high of $12.49, and Wall Street analysts see significant upside potential in the stock.

Given its strong financials, promising growth prospects, discounted valuation, consistent dividend payments, and solid momentum, it could be wise to invest in the stock now.

How Does Energy Transfer LP (ET) Stack Up Against its Peers?

ET has an overall POWR Rating of B. One could also check out these other stocks within the Energy-Oil & Gas industry with an A (Strong Buy) rating: Birchcliff Energy Ltd. (BIREF), Epsilon Energy Ltd. (EPSN), and PrimeEnergy Resources Corporation (PNRG).

ET shares fell $0.02 (-0.17%) in premarket trading Tuesday. Year-to-date, ET has gained 54.97%, versus a -19.31% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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