ET - Energy Transfer: Debunking Investor Pessimism

2024-03-13 00:18:10 ET

Summary

• Energy Transfer is an underappreciated midstream company with a negative shareholder stigma due to a distribution cut in 2020.
• ET's financial footing is healthy and warrants a Buy rating, as it has taken steps to improve its credit metrics and has ample margin to raise the distribution.
• Comparisons to other midstream companies show that ET is undervalued with respect to its cash generation abilities.

Thesis

Energy Transfer ( ET ) continues to be undervalued compared to the bulk of the midstream industry. This discounted valuation is a result of negative shareholder sentiment as a result of a distribution cutback in 2020. It is my view that this stigma presents an opportunity to buy this high-yield stock with less risk than would be inferred if readers did not keep an open mind and let the past stay in the past.

I previously covered ET in May 2023 with a BUY rating. Since then, the company has continued to increase the distribution while also making several accretive acquisitions. The stock has made some gains in that time but has not kept up with the operational performance of the company, resulting in underlying value. As a result, it felt it was appropriate to perform a deep dive to remove any concerns that may be keeping investors on the sidelines....

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