ET Stock Trading at a Discount to Industry at 10.54: How to Play?

Barchart · 10/25 12:26

Energy Transfer LP’s ET units are somewhat inexpensive relative to its Zacks Oil and Gas Production Pipeline – MLB industry. ET’s current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) is 10.54 compared with the industry average of 12.01. It indicates that the firm is presently undervalued compared to its industry.

Another firm operating in this space, Plains All American Pipeline PAA, is also trading EV/EBITDA of 9.07, at a discount compared to its industry.

ET Unit’s Trading at a Discount

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The oil and gas midstream firm owns a wide network of pipelines across the United States and is pursuing opportunities to serve growing power loads from new demand centers across its network.

The ET stock has also outperformed its industry and sector in the last 12-month period.

ET Unit’s Price Performance (One year)

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Image Source: Zacks Investment Research

The chart below indicates that ET Units are trading above the 50-day and 200-day simple moving average, indicating a bullish trend.

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Image Source: Zacks Investment Research

Extensive Pipelines and Well-balanced Assets Aid ET

Energy Transfer owns more than 130,000 miles of pipelines and related infrastructure spread across 44 states in the United States. Energy Transfer has a well-balanced asset mix that provides strong earnings support. ET’s oil and gas pipelines, gathering and processing, and storage assets are spread in major U.S. basins and growing demand markets. The firm will invest $3-3.2 billion in 2024 to further expand and strengthen its asset base.

The firm is expanding its operations through organic means and accretive acquisitions. It has been making one large accretive acquisition each year since 2021. The WTG acquisition, which closed earlier this year, expanded ET’s natural gas pipeline and processing network in the Permian Basin.

Courtesy of its strong assets base, ET has an NGL and oil export capacity of more than 1.1 million barrels per day and 1.85 million barrels per day, respectively. The firm is working to increase its NGL export capabilities through the expansion of Marcus Hook and Nederland export terminals. The company’s market share of worldwide NGL exports remains around 20%.

Predominantly Fee-Based Saves ET From Price Fluctuation

The majority of Energy Transfer’s revenues are generated from fee-based contracts and are anchored by strong customers. The firm generates nearly 90% of its revenues by charging fees for transportation and storage services it provides to its strong customer base, which significantly lowers the firm’s commodity price fluctuation risks.
 
As oil and gas production volumes are rising across the United States, ET will have enough producers who will utilize its pipelines for transportation.

Insiders are Purchasing More ET Units

ET’s management and insiders own a sizeable chunk of its units. Management members and independent board members continue to purchase units of the firm. Energy Transfer insiders bought more than 44 million units worth $468 million since January 2021 till August 2024. The increasing ownership of insiders indicates bright prospects and sustainable growth amid rising demand in the midstream space.

Insiders’ transactions are often considered a yardstick for judging the long-term financial health of the firm. Currently, the insiders own nearly 10% of ET’s units, which is significantly higher than its peer group companies.

ET’s Earnings Estimates Suggest Y/Y Rise

The Zacks Consensus Estimate for Energy Transfer’s 2024 and 2025 earnings per unit indicates year-over-year growth of 23.9% and 10.5%, respectively.

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Image Source: Zacks Investment Research

ET Raises Unitholders' Value

Energy Transfer’s management continues to increase the value of its unitholders. On July 25, 2024, the firm increased its quarterly cash distribution to 32 cents per common unit for the second quarter of 2024, which reflects a 3.2% increase from second-quarter 2023 levels. ET is targeting an annual distribution growth rate of 3% to 5%.

Summing Up

Given its improvement in year-over-year earnings, this can be a favorable entry point for investors to add ET to their portfolio. Its increasing insider ownership and the stock’s VGM Score of A also indicate strong growth for the firm from the current levels.

Energy Transfer’s well-spread pipelines in the United States and continuous expansion through acquisition and organic means continue to boost the firm’s performance.

Those who already own this Zacks Rank #3 (Hold) stock would do well to retain it in their portfolios.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Plains All American Pipeline, L.P. (PAA): Free Stock Analysis Report
 
Energy Transfer LP (ET): Free Stock Analysis Report

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