Units of Energy Transfer LP ET have rallied 27.2% in the past year compared with the Zacks Oil and Gas – Production Pipeline – MLB industry’s rally of 64.6% and the Zacks Oil-Energy sector’s rise of 39%.
The oil and gas midstream company operates an extensive pipeline network across the United States and is exploring opportunities to meet rising energy demand from emerging power-intensive markets.
However, increasing operating expenses, concerns over a potential global LNG supply glut, substantial capital requirements and lengthy project development timelines raise the risk of cost overruns, potentially weighing on profitability and financial flexibility.
Price Performance (One Year)
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Another firm with a significant U.S. midstream footprint is Energy Transfer’s peer, Plains All American Pipeline LP PAA. Like Energy Transfer, Plains All American generates a substantial portion of its revenues through fee-based contracts, providing stable and predictable cash flows. Over the past year, the stock has rallied 51%.
Given the recent weakness in Energy Transfer’s unit price, investors may wonder whether the current valuation presents an attractive buying opportunity. Let us examine the key factors influencing ET’s growth prospects, financial performance and risks to determine whether now is an opportune time to add the stock to an investment portfolio.
Factors That Are Acting as a Tailwind for ET’s Operations
Energy Transfer operates an extensive network of more than 140,000 miles of pipelines and associated infrastructure spanning 44 U.S. states. Its diversified asset base, comprising oil and natural gas pipelines, gathering and processing facilities, and storage assets, is strategically positioned across key production regions and expanding energy markets, supporting consistent earnings and long-term growth.
The company’s integrated midstream infrastructure enables it to serve a broad range of customers and end markets efficiently. Its established customer relationships and predominantly fee-based operating model enhance earnings visibility and cash flow stability. With nearly 90% of revenues generated from fee-based activities, ET maintains relatively limited exposure to commodity price fluctuations, strengthening its financial resilience.
Energy Transfer continues to bolster its long-term growth prospects through organic development initiatives, strategic acquisitions and partnerships. The company is investing in expanding its natural gas, NGL and crude oil infrastructure to capitalize on increasing energy demand across domestic and international markets.
Energy Transfer continues to pursue a disciplined capital allocation strategy, prioritizing balance sheet improvement, investments in high-return organic growth opportunities and the distribution of excess cash to unitholders.
Headwinds for Energy Transfer
Despite its predominantly fee-based business model, Energy Transfer remains exposed to commodity price fluctuations, changing regional spreads and variations in producer activity. Normalization of favorable pricing conditions could reduce optimization margins and throughput volumes, potentially affecting profitability. Increasing competition across pipeline networks and terminals may further pressure transportation rates and utilization.
Energy Transfer’s substantial growth capital spending of $5.6-$5.9 billion in 2026 increases exposure to construction delays, cost overruns and slower project commercialization. Its TTM return on invested capital of 7.1% trails the industry median of 9.3%, highlighting execution risks. Customer concentration and reliance on subsidiary distributions add financial uncertainty.
ET’s Earnings Estimates Moving North
The Zacks Consensus Estimate for Energy Transfer’s 2026 and 2027 earnings per unit (“EPU”) indicates growth of 12.34% and 6.92%, respectively, in the past 60 days.
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The same for Plains All American’s 2026 and 2027 EPU indicates an increase of 7.27% and 11.18%, respectively, in the past 60 days.
ET Raises Unitholders’ Value
ET’s current quarterly cash distribution rate is 34 cents per common unit. Management has raised distribution rates 19 times in the past five years, and the current payout ratio is 92%.
Another firm, operating in the space with strong operations, Delek Logistics Partners DKL, also distributes cash to its unitholders. DKL’s management has raised distribution rates 20 times in the past five years, and the current payout ratio is 157%.
ET’s Units Are Trading at a Discount
Energy Transfer units are somewhat inexpensive relative to the industry. ET’s current trailing 12-month Enterprise Value/Earnings before Interest, Tax, Depreciation and Amortization (EV/EBITDA) is 9.43X compared with the industry average of 13.14X. This indicates that the firm is presently undervalued compared with its industry.
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Delek Logistics Partners is currently trading at a premium to its industry. DKL’s EV/EBITDA multiple is 17.08X higher than its industry.
ET Stock’s ROE Is Lower Than the Industry
Return on equity (“ROE”) is a financial ratio that measures how well a company uses its shareholders’ equity to generate profits. The current ROE of the company indicates that it is using shareholders’ funds more efficiently than peers.
Energy Transfer’s trailing 12-month ROE is 11.55%, lower than the industry’s 14.22%.
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ET’s Debt to Capital
The midstream industry is capital intensive and the firms operating in this space need to make substantial investments to build up the pipeline network and related infrastructure. In addition, a substantial amount is needed to maintain the assets properly. The increase in interest rates can have an adverse impact on its margins.
Energy Transfer also needs to borrow funds to continue with the long-term capital projects and serve its customers. ET’s debt to capital is 57.52%, a tad higher than its industry average of 55.85%.
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Wrapping Up
Energy Transfer’s extensive network of more than 140,000 miles of pipelines and associated infrastructure positions it to capitalize on increasing U.S. oil, natural gas and NGL production. Its largely fee-based operating model suppor
Source: finance.yahoo.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
