With a $27.48 billion market cap, Energy Transfer LP (ET) provides energy-related services. The company sells natural gas to electric utilities, independent power plants, local distribution, and industrial end-users. It owns and operates more than 11,600 miles of natural gas transportation pipeline, three natural gas storage facilities in Texas and Oklahoma, and 19,830 miles of interstate natural gas pipeline.

In addition, the company owns and operates natural gas gathering and natural gas liquid (NGL) pipelines, processing plants, NGL and propane fractionation facilities, and oil stabilization facilities in various states across the United States and North America.

ET reported strong second-quarter 2022 results. Based on the company’s strong performance in the last quarter and continued increase in demand, it has raised its 2022 full-year outlook.

On August 24, ET announced that its subsidiary, Energy Transfer LNG Export, LLC, has entered into a 20-year LNG Sale and Purchase Agreement (SPA) with Shell NA LNG LLC related to its Lake Charles LNG project. Under the agreement, Energy Transfer LNG will supply Shell with 2.1 million tonnes of LNG per annum (mtpa). This SPA is expected to boost the company’s revenue streams.

In the same month, ET agreed to acquire Woodford Express, LLC, a Mid-Continent gas gathering and processing system, for approximately $485 million. The system has 450 MMcf per day of cryogenic gas processing and treating capacity and over 200 miles of gathering and transportation lines connected to Energy Transfer’s pipeline network. 

Notably, the energy stock pays high dividends. ET announced a quarterly cash distribution of $0.23 per Energy Transfer unit ($0.92 on an annualized basis) for the second quarter, which was paid on August 19. The distribution represents a more than 50% increase compared to the prior-year period and a 15% increase sequentially.

This distribution increase represents the company’s commitment to return additional value to unitholders while maintaining its target leverage ratio of 4.0x-4.5x debt-to-EBITDA. Also, ET’s four-year average dividend yield is 10.46%, while its current dividend translates to a 7.58% yield. Its payout ratio stands at 60.6%.

ET has gained 12.9% over the past month and 19.7% over the past six months to close the last trading session at $12.14. The stock is currently trading just 2.8% below its 52-week high of $12.49, which it hit on August 24, 2022.

Here is what could influence ET’s performance in the upcoming months:

Robust Financials

ET’s revenue increased 71.8% year-over-year to $25.95 billion. Its operating income grew 32.3% year-over-year to $2.11 billion in the fiscal 2022 second quarter ended June 30, 2022. The company's adjusted EBITDA amounted to $3.23 billion, up 23.4% year-over-year.

Furthermore, the company’s net income attributable to partners and net income per unit came in at $1.33 billion and $0.39, registering increases of 111.8% and 95% from the prior-year period, respectively. Also, distributable cash flow improved 30.9% from the year-ago value to $2.31 billion.

Improved Guidance

The company now expects adjusted EBITDA for the full year 2022 to be between $12.60 billion and $12.80 billion, compared to the prior guidance of $12.20 billion to $12.60 billion. ET expects its 2022 growth capital expenditures to be between $1.8 billion and $2.10 billion.

Favorable Analyst Estimates

Analysts expect ET’s revenue for the fiscal 2022 third quarter (ending September 2022) to come in at $23.96 billion, representing an increase of 43.8% from the same period in 2021. The current quarter's $0.39 consensus EPS estimate indicates a 96.9% year-over-year increase. The company has surpassed the consensus revenue estimates in each of the trailing four quarters.

In addition, ET’s revenue for the fiscal year 2022 (ending December 2022) is expected to rise 28.6% year-over-year to $86.71 billion. Also, analysts expect the company’s revenue and EPS for the next year to grow by 3% and 3.2% year-over-year, respectively.

Discounted Valuation

In terms of forward P/E, ET is currently trading at 7.52x, 9.1% lower than the industry average of 8.28x. The stock’s forward EV/Sales multiple of 1.16 is 39.8% lower than the industry average of 1.93. Also, its forward Price/Sales ratio of 0.43 compares with an industry average of 1.44.

Furthermore, in terms of forward Price/Book, ET is currently trading at 1.05x, 45.2% lower than the industry average of 1.91x. The stock’s forward Price/Cash Flow multiple of 3.57 is 17.4% lower than the 4.32 industry average.

Consensus Rating and Price Target Indicate Potential Upside

Each of the three Wall Street analysts that rated ET rated it Buy. The 12-month median price target of $15.00 indicates a 23.6% potential upside. The price targets range from a low of $14.00 to a high of $16.00.

POWR Ratings Show Promise

ET's overall B rating equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

ET has a grade of A for Momentum. This is justified as the stock is currently trading above its 50-day and 200-day moving averages of $10.74 and $10.26, respectively. In addition, it has a B grade for Value, in sync with its lower-than-industry valuation.

ET is ranked #30 out of 97 stocks in the B-rated Energy-Oil & Gas industry.

Beyond what I have stated above, we have also given ET grades for Sentiment, Growth, Quality, and Stability. Get access to all ET ratings here.

Bottom Line

ET has delivered solid top- and bottom-line performance in its last quarter and affirmed continued growth for fiscal 2022. Moreover, new strategic acquisitions, partnerships, and a positive long-term outlook for energy demand brighten the company’s prospects.

Given ET’s robust financials, solid revenue and earnings growth estimates, lower-than-industry valuation, attractive dividends, and solid momentum, we think it could be wise to invest in the stock now.

How Does Energy Transfer LP (ET) Stack Up Against its Peers?

ET has an overall POWR Rating of B. One could also check out these other stocks within the Energy-Oil & Gas industry with an A (Strong Buy) rating: Whitecap Resources, Inc. (SPGYF), PrimeEnergy Resources Corporation (PNRG), and Unit Corp. (UNTC).

ET shares were unchanged in after-hours trading Monday. Year-to-date, ET has gained 57.93%, versus a -14.60% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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