One quantifiable indicator of management's confidence in their own company is insider buying - in other words, when executives are actively buying shares with their own money. These “insiders” are intimately aware of the functioning of the company, and often have unique insights into its operations, financials and strategic decisions. Consequently, when these insiders are buying stock, it is generally construed as a positive signal.
But who are these insiders? "Insiders" are a group that includes a company's officers and directors, as well as any shareholders with a stake of 10% or more. Insider buying or selling activity can be accessed through publicly available Form 4 filings.
As oil prices extend their recent rally into today's session, natural gas (NGV23) is also ticking higher - although the commodity remains down sharply year to date. With energy prices back in focus, let's turn our focus to one standout stock from the natural gas space that insiders have been buying all year long.
ET Outperforms on the Charts
Energy Transfer (ET) is a Texas-based energy company founded in 1995 by Ray Davis and Kelcy Warren that transports, stores and processes natural gas, natural gas liquids (NGLs), and crude oil. The company is one of the leading midstream energy companies in the U.S., commanding a market cap of $42.74 billion and offering a healthy dividend yield of 8.74%.
Energy Transfer stock is up 23.8% on a YTD basis. That's a significant outperformance compared to the Energy Select Sector SPDR Fund's (XLE) gain of 8.3% over the same period.
Plus, the stock could have more upside in store, with company insiders picking up the shares at a healthy clip around current prices.
Key Insiders Buying ET
Most recently, Energy Transfer's co-CEO Marshall S. McCrea III made two separate purchases of stock during the first week of September. The exec bought 100,000 shares spread over two transactions on Sept. 1 and Sept. 5, worth about $1.4 million in total. McCrea bought his ET blocks at per-share prices of $13.64 and $13.79, respectively.
McCrea is just the latest company insider to scoop up ET so far in 2023. Most notably, Chairman Kelcy L. Warren has been bulking on the company's shares from the start of the year. His buying spree commenced on Feb. 22, just a few days after the company posted strong results for the fourth quarter.
All told, Warren has purchased a noteworthy 9 million shares of the company year to date for a total value of about $115.8 million, with the latest purchase of 3 million shares at $12.96 each made on Aug. 21. After this year's buying spree, the chairman now holds about 9.45% of ET.
Another notable buyer has been the EVP of the company, Bradford D. Whitehurst. Whitehurst made two purchases of 10,000 shares each of the company's stock in 2023. The first was on May 30 for $12.43 per share, and more recently on Aug. 22 for $13 per share. Both transactions narrowly exceeded $100,000 in value.
There were a couple of notable operational developments for ET during the most recent period these insiders were picking up shares.
First, the company reported second-quarter results, where it posted a weak set of numbers on lower prices for natural gas and natural gas liquids. Both revenue and earnings fell from the previous year, and bottom-line results fell short of consensus expectations.
Second, Energy Transfer announced an all-equity $7.1 billion acquisition of midstream energy company Crestwood, which is expected to be value accretive. Earlier in the year, Energy Transfer announced the acquisition of Lotus Midstream, another midstream energy company, for $1.45 billion.
Analyst Estimates
In terms of earnings projections, analysts are not that upbeat about Energy Transfer, which has a history of missing consensus expectations in its quarterly reports. Earnings are expected to decline 6.7% for the current quarter and 14.2% overall for FY 2023.
Regardless, analysts are bullish about Energy Transfer stock. The consensus rating is a “Strong Buy” with a mean target price of $16.83, indicating upside potential of about 22.8% from current levels. Out of 11 analysts covering the stock, 10 have a “Strong Buy” rating and 1 has a “Moderate Buy” rating.
Final Takeaway
Energy Transfer is outperforming the broader equities market this year, and reported an almost negligible dip in operating profits during the most recent quarter - all despite a steep pullback in natural gas prices during this time frame.
Further, Russia remains mired in conflict with Ukraine, which makes natural gas exports for the country almost impossible. This macroeconomic tailwind is expected to benefit players like Energy Transfer, which can transfer more volumes of natural gas through its pipelines, especially to Europe.
Given this positive fundamental backdrop - and supported by strong insider buying, an impressive dividend yield, and analyst optimism - investors looking to add energy exposure amid rising prices may want to follow insiders into Energy Transfer stock around current levels.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
