ET - Energy Transfer: An Even Stronger Buy Now

2024-06-25 10:54:44 ET

Summary

• This article upgrades my earlier buy rating on ET to a strong buy due to the acquisition of Crestwood Equity Partners.
• I expect this acquisition to catalyze a higher growth rate than my earlier projection.
• When adjusted by growth rate and yield, valuation metrics approaches absurd levels.
• The P/E growth ratio is only 0.8x and PEGY (P/E to Growth and Dividend Yield) yield is only 0.5x, both far lower than the 1x ideal threshold.

I wrote a few articles in the past year on Energy Transfer ( ET ) starting in a price range of around $13 to $14 (see the chart below). Its shares (or units to be more precise) have indeed delivered strong performance, advancing more than 26% in the past year. Combined with an ~8% dividend yield, the return beat the broader market by a large margin. In my last article , published a bit more than three months ago, I specifically argued that:

Energy Transfer LP stock is still a buy in my view despite a price near multi-year peak levels. Valuation metrics, including Graham's approach, still suggest that ET is undervalued compared to its market price. At the same time, an ~8% dividend provides non-negligible downside protection in the case of a market downturn.

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