Is It Time To Reconsider Energy Transfer (ET) After Strong Multi Year Returns?

• If you have been wondering whether Energy Transfer is still good value at around US$16.52 a unit, you are not alone. Many income focused investors are asking the same question.
• The unit price has been relatively steady in the short term, with a 0.2% move over 7 days and a 1.7% decline over 30 days. The longer term picture includes a 0.4% decline year to date, a 9.8% decline over 1 year, a 69.2% return over 3 years and a 239.6% return over 5 years.
• Recent moves in Energy Transfer units come against a backdrop of ongoing interest in midstream energy infrastructure, including pipeline capacity, storage assets and the role of natural gas in power and industrial markets. Sector headlines have focused on how these assets fit into long term energy demand and capital allocation priorities, which helps frame how investors think about both risk and income.
• On our valuation checks, Energy Transfer scores 5 out of 6 for being undervalued, giving it a valuation score of 5/6. Next we will look at what different valuation approaches say about that price tag, before finishing with a way to assess value that can give you more context than the numbers alone.

Find out why Energy Transfer's -9.8% return over the last year is lagging behind its peers.

Approach 1: Energy Transfer Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business could be worth by projecting its future cash flows and then discounting those back to today’s dollars.

For Energy Transfer, the model used is a 2 Stage Free Cash Flow to Equity approach, based on free cash flow available to unitholders. The latest twelve month free cash flow is about $6.71b. Analyst estimates and extrapolated projections suggest free cash flow in 2030 of $7.19b, with a path of annual figures between 2026 and 2035 that are first sourced from analysts and then extended by Simply Wall St using assumed growth rates.

When all those future cash flows are discounted back using this model, the estimated intrinsic value comes out at $40.58 per unit. Compared to the recent unit price of about $16.52, the DCF output implies Energy Transfer is around 59.3% undervalued on this measure.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Energy Transfer is undervalued by 59.3%. Track this in your watchlist or portfolio, or discover 885 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Energy Transfer.

Approach 2: Energy Transfer Price vs Earnings

For a profitable business like Energy Transfer, the P/E ratio is a useful quick check because it links what you pay per unit directly to the earnings that support distributions and reinvestment.

In simple terms, higher growth expectations and lower perceived risk usually justify a higher “normal” P/E, while slower growth or higher risk tends to pull a fair P/E lower. So context matters when you compare multiples.

Energy Transfer currently trades on a P/E of 13.15x. That is very close to the Oil and Gas industry average of 13.13x and below the peer group average of 19.09x. To add more nuance, Simply Wall St calculates a proprietary “Fair Ratio” of 21.76x for Energy Transfer, which reflects factors such as its earnings growth profile, industry, profit margins, market cap and identified risks.

This Fair Ratio goes further than a simple industry or peer comparison because it adjusts for the company’s own fundamentals rather than assuming it should trade in line with a broad group.

Comparing the Fair Ratio of 21.76x with the actual P/E of 13.15x suggests Energy Transfer trades at a discount on this earnings based view.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1449 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Energy Transfer Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives on the Community page to set out your own story for Energy Transfer, link that story to specific forecasts for future revenue, earnings and margins, turn those forecasts into a Fair Value, then compare that Fair Value to the current price and see it update automatically when new news or earnings arrive. One investor might build a Narrative that leans on expanding pipeline and export infrastructure, long term customer commitments and natural gas as a bridge fuel to support a Fair Value of about US$21.62. Another might focus on construction risk, contracting uncertainty, competition and energy transition pressures and therefore set more cautious forecasts and a lower Fair Value closer to the US$17 price targets that some analysts are using.

Do you think there's more to the story for Energy Transfer? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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