ET - Energy Transfer: Moving America's Energy At ~40% Discount To Peers

2024-04-02 03:56:17 ET

Summary

• Energy Transfer is a leading North American midstream operator, moving ~35% of all US produced crude and ~30% of all US produced natural gas along ~125k miles of pipeline.
• ET recently closed its highly complementary $7.1B acquisition of Crestwood Equity Partners with synergies ~15% of deal value after doubling initial estimates to now expect $80MM run-rate from 26E.
• Forward dividend yield of ~8% screens as highest in its peer group and is well protected at 1.4x FCF coverage based on 24E consensus.
• Significant insider ownership at currently ~10-11% is unique among peers and a key competitive advantage in aligning management execution with long-term shareholder interests.
• Trading at up to 40% discount to peers, I see highly favorable risk reward and initiate shares at Overweight with a total 2024 TSR potential of ~34%. (PT $19.8).

With ongoing above-target inflation and a solid outlook for energy demand, the utility-like character of the midstream segment has become more and more a focus of income-oriented investors. Energy Transfer ( ET ) has been one of the top performers in the sector, delivering a 63.5% total shareholder return ("TSR") over the last 5 years (~13% annualized), significantly ahead of its large-cap LP peers Enbridge ( ENB ) and Enterprise Products Partners ( EPD ) and the broader sector at 34%.

Offering the highest forward dividend yield among North American large-cap midstream peers and a heavily discounted valuation, I believe ET can continue to outperform and initiate at Overweight with a YE24 price target of $19.8 per common unit based on 50/50 DDM and multiples approach. At ~26% price upside and an 8% forward dividend yield, I see potential for ET shares to deliver up to 34% of TSR through 2024....

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