Energy Transfer: A Monster Year and a Bright Future Ahead
The energy sector has been on fire in 2024, and Energy Transfer (NYSE: ET) is leading the charge. With a staggering 35% rally in its unit price, investors are taking notice. But what’s driving this surge, and can the momentum continue into 2025?
Operational and Financial Strength
Energy Transfer has been on a roll operationally and financially. The master limited partnership (MLP) set multiple volume records in the third quarter, thanks to organic growth projects and strategic acquisitions. The company’s $7.1 billion deal for Crestwood Equity Partners and its $3.1 billion acquisition of WTG Midstream have been significant contributors to its growth. Additionally, Energy Transfer has completed several processing optimization projects, including the Red Lake III processing plant and the Midland to Cushing pipe connection project.
Growth Drivers
These growth drivers have positioned Energy Transfer to increase its adjusted EBITDA by 12% this year, allowing the company to raise its distribution by over 3%. The MLP has also strengthened its balance sheet and continued to make accretive new investments. With a planned investment of $2.8 billion to $3 billion in growth capital projects in 2024, Energy Transfer is poised for continued growth.
Future Growth Prospects
The company has several projects in the pipeline, including its ninth natural gas liquids fractionator, which is expected to come online in 2026. Energy Transfer is also seeing increased demand for gas pipeline capacity, driven by growing power demand and AI data centers. Furthermore, the company believes the recent election results will catalyze the approval of additional expansion projects, including its long-delayed Lake Charles LNG export terminal.
Valuation and Yield
Despite its impressive rally, Energy Transfer still trades at a reasonable valuation compared to its peers. With a forward enterprise value-to-EBITDA ratio of less than 9 times, the MLP offers a high-yielding distribution of 6.8%. This attractive valuation is due in part to Energy Transfer’s strong financial metrics, including its ability to cover its distribution with cash flow by around 2 times.
A Compelling Investment Opportunity
With its strong operational and financial performance, visible growth prospects, and attractive valuation, Energy Transfer remains a compelling investment opportunity for those comfortable with the MLP structure. While the company’s unit price has surged this year, it still offers an enticing income stream and a promising future ahead.
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