ET - Energy Transfer: Surging Profits Meet Discounted Valuation

2024-05-22 07:36:40 ET

Summary

• Energy Transfer reported a very strong Q1, recording a 17% YoY growth in distributable cash flow and upgrading full-year EBITDA guidance to $15-15.3B (previously $14.5-14.8B).
• Notably, crude transportation volumes surged 44% with segment sales up 26% YoY, driven by strong customer activity and the 2023 acquisition of Crestwood Equity Partners.
• Despite those strong results, the Company's valuation remains significantly below peers, trading at 7.9x 24E EBITDA vs. broader sector average at 10.3x and MLP peers at 10.1x.
• I reiterate my Overweight rating and marginally raise my price target by 2% to $20/unit on higher EBITDA, FCF/unit estimates and a 3% dividend raise.
• At ~25% price upside and an 8% forward yield, I see potential for up to 33% total return and continue to name ET as my top pick in the US midstream space.

I recently initiated my coverage of US-midstream giant Energy Transfer ( ET ) when I assigned it an Overweight rating based on 1) its strong track record of organic and inorganic growth, 2) a sector-leading and well-covered dividend yield and 3) a heavily discounted valuation. The company reported its Q1 results on May 8, revealing a very strong start to the year, both operational and financial. Boosted by the Crestwood acquisition, transported volumes rose significantly with crude volumes surging more than 40%, in turn driving revenue and DCF growth of 14% and 17% YoY. On the back of a strong quarter and expecting further strength, management also upgraded its full-year EBITDA guidance by ~3-4% to now expect up to $15.3B....

For further details see: