Diversified midstream energy company Energy Transfer LP (ET) delivered impressive third-quarter results. Higher volumes across all its core segments and the impact of the recent acquisition of Enable Midstream primarily drove its performance during the quarter.
Given continued strong energy demand, the company raised its full-year 2022 outlook. ET expects adjusted EBITDA to be between $12.60 billion and $12.80 billion, up from the previously guided range of $12.20 billion to $12.60 billion. In addition, ET expects its capital expenditures to be between $1.80 billion and $2.10 billion.
ET is highly committed to returning value to shareholders via attractive dividends. On October 26, the company announced a quarterly cash distribution of $0.265 per common unit ($1.06 on an annualized basis) for the third quarter, to be paid on November 21, 2022. The distribution per unit represents a 70% increase over the year-ago quarter and a 15% increase sequentially.
Also, its current dividend translates to an 8.58% yield, while its four-year average dividend yield is 10.42%. Future increases to the distribution level will continue to be evaluated quarterly with the ultimate goal of reaching the previous level of $0.305 per unit per quarter ($1.22 on an annualized basis) while balancing its leverage target, growth opportunities, and unit buybacks.
Shares of ET have gained 41.9% year-to-date and 41.9% over the past year to close the last trading session at $12.36.
Here is what could influence ET’s performance in the upcoming months:
Robust Financials
ET’s revenue increased 37.7% year-over-year to $22.94 billion for the fiscal 2022 third quarter ended September 30, 2022. Its operating income grew 37.3% year-over-year to $1.97 billion. The company’s adjusted EBITDA amounted to $3.09 billion, up 19.7% year-over-year. Its net income attributable to partners increased 58.4% year-over-year to $1.01 billion.
Furthermore, the company’s net income per unit came in at $0.29, registering an increase of 45% from the prior-year period. Also, distributable cash flow improved by 20.5% from the year-ago value to $2.08 billion.
Recent Positive Developments
In September, ET acquired 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.
On August 24, the company 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.
Favorable Analyst Estimates
Analysts expect ET’s revenue for the fiscal 2022 fourth quarter (ending December 31) to come in at $23.63 billion, representing an increase of 26.7% year-over-year. The consensus EPS estimate of $0.33 for the same quarter indicates a 13.8% year-over-year increase. The company surpassed the consensus revenue and EPS estimates in three of the last four quarters.
In addition, the company’s revenue for the fiscal year 2022 (ending December 2022) is expected to rise 39% year-over-year to $93.72 billion.
Lower-than-industry Valuation
In terms of forward non-GAAP P/E, ET is currently trading at 7.31x, 6.3% lower than the industry average of 7.81x. The stock’s forward EV/Sales multiple of 1.09 is 44.7% lower than the industry average of 1.97. Moreover, its forward Price/Sales multiple of 0.41 compares to the industry average of 1.42.
Furthermore, in terms of forward Price/Book, ET is currently trading at 1.11x, 42.2% lower than the industry average of 1.92x. The stock’s forward Price/Cash Flow multiple of 4.13 is 2.7% lower than the industry average of 4.25.
POWR Ratings Show Promise
ET has an overall rating of B, 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. It has a grade of B for Momentum. This is justified as the stock currently trades above its 50-day and 200-day moving averages of $11.76 and $10.69, respectively. In addition, it has a B grade for Value, consistent with its lower-than-industry valuation metrics.
ET is ranked #27 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 business continues to perform well, driven by sustained demand across its network and strategic acquisitions and partnerships. Moreover, the stock is trading above its 50-day and 200-day moving averages, indicating an uptrend.
Given ET’s promising growth prospects, discounted valuation, and attractive dividend, it could be wise to invest in the stock this fall.
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: Marathon Petroleum Corp. (MPC), Epsilon Energy Ltd. (EPSN), and PrimeEnergy Resources Corporation (PNRG).
ET shares were trading at $12.15 per share on Thursday morning, down $0.21 (-1.70%). Year-to-date, ET has gained 56.00%, versus a -20.82% 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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