Energy Transfer LP (ET) sells natural gas to electric utilities, independent power plants, local distribution, and industrial end-users. It 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.
In addition, the company owns and operates natural gas gathering and natural gas liquid (NGL) pipelines, processing plants, NGL and propane fractionation facilities, and oil stabilization facilities in various states across the United States and North America.
The company reported strong results for the second quarter of 2022 and raised its full-year 2022 guidance. It now expects adjusted EBITDA to be between $12.6 billion and $12.8 billion, up from the previously guided range of $12.2 billion to $12.60 billion. In addition, it expects its growth capital expenditures to be between $1.80 billion and $2.10 billion.
In July 2022, ET announced a quarterly cash distribution of $0.23 per Energy Transfer unit ($0.92 on an annualized basis) for the second quarter, which was paid on August 19. The distribution represents a more than 50% increase compared to the prior-year period and a 15% increase sequentially. Also, its four-year average dividend yield is 10.45%, while its current dividend translates to a 7.97% yield. Its payout ratio stands at 60.6%.
ET is highly committed to returning additional value to unitholders with the ultimate goal of reaching the previous distribution level of $0.305 per unit per quarter ($1.22 on an annualized basis) while balancing its target leverage ratio of 4.0x-4.5x debt-to-EBITDA, growth opportunities, and unit buybacks.
Shares of ET have gained 32.5% year-to-date and 19.7% over the past six months to close the last trading session at $11.54. The stock is currently trading just 7.6% 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:
Recent Positive Developments
On August 24, ET announced that its subsidiary, Energy Transfer LNG Export, LLC, 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 (Energy Transfer Canada) 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, the company agreed to acquire Woodford Express, LLC, a Mid-Continent gas gathering and processing system, for approximately $485 million in the same month. 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.
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 by 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 $23.96 billion, representing an increase of 43.8% year-over-year. The consensus EPS estimate of $0.37 for the same quarter indicates an 82.9% year-over-year increase. The company has surpassed the consensus revenue estimates in each of the trailing four quarters.
In addition, ET’s revenue for the fiscal year 2022 (ending December 2022) is expected to rise 37.4% year-over-year to $92.62 billion.
Attractive Valuation
In terms of forward P/E, ET is currently trading at 7.47x, 9.4% lower than the industry average of 8.25x. The stock’s forward EV/Sales multiple of 1.07 is 42.5% lower than the industry average of 1.86. Also, its forward Price/Sales multiple of 0.38 compares with an industry average of 1.36.
Furthermore, in terms of forward Price/Book, ET is currently trading at 0.99x, 43.9% lower than the industry average of 1.77x. The stock’s forward Price/Cash Flow multiple of 3.39 is 18.6% lower than the 4.17 industry average.
Consensus Rating and Price Target Indicate Potential Upside
Each of the five Wall Street analysts that rated ET rated it Buy. The 12-month median price target of $15.20 indicates a 31.7% potential upside. The price targets range from a low of $14.00 to a high of $16.00.
POWR Ratings Show Promise
ET's overall B rating equates 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. It has a grade of A for Momentum. This is justified as the stock is currently trading above its 200-day moving average of $10.69. In addition, it has a B grade for Value, consistent with its lower-than-industry valuation metrics.
ET is ranked #36 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 reported solid fiscal 2022 second-quarter financials and raised full-year 2022 guidance. Furthermore, the company seems well-positioned to benefit from its strategic acquisitions, partnerships, and a positive outlook for energy demand. Given ET’s promising growth prospects, discounted valuation, attractive dividends, and solid momentum, we think 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: PBF Energy Inc. (PBF), Epsilon Energy Ltd. (EPSN), and PrimeEnergy Resources Corporation (PNRG).
ET shares fell $0.02 (-0.17%) in premarket trading Monday. Year-to-date, ET has gained 48.17%, versus a -22.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
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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