Units of Energy Transfer LP ET have rallied 12.1% in the past year compared with the Zacks Oil and Gas - Production Pipeline - MLB industry’s growth of 43.4% and the Zacks Oil-Energy sector’s rally of 19.4%.
The midstream company operates an extensive U.S. pipeline network and is targeting growth from rising power demand and benefits from fee-based contracts. However, higher operating costs and lower NGL and natural gas prices are hurting its earnings.
ET’s extensive pipelines spanning more than 140,000 miles will play a vital role in transporting U.S. domestic supply to global markets.
Price Performance (One Year)
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Another firm having extensive midstream operations in the United States is Plains All American Pipeline PAA. PAA also has extensive fee-based contracts with its customers, units of the firm have rallied 44.4% in the past 12 months.
Given the current weakness in ET’s share price, will it be a correct choice to add this oil-energy stock to your portfolio? Let us delve deeper and find out the factors that can help investors decide whether it is a good entry point to add ET stock to their portfolio.
Factors That Are Acting as a Tailwind for ET’s Operations
Energy Transfer owns and operates more than 140,000 miles of pipelines and related infrastructure across 44 U.S. states. Its diversified asset portfolio, including oil and gas pipelines, gathering and processing systems, and storage facilities, is strategically located in major production basins and high-growth demand markets, supporting stable and resilient earnings.
The company’s broad midstream network enables efficient service across multiple end markets, while its strong customer base and predominantly fee-based business model provide earnings stability. Nearly 90% of revenues are derived from transportation and storage fees, significantly reducing exposure to commodity price volatility.
The firm continues to expand through organic growth initiatives, accretive acquisitions and strategic partnerships. Supported by a strong asset base, Energy Transfer has NGL export capacity exceeding 1.4 million barrels per day and is further enhancing capabilities through expansions at the Marcus Hook and Nederland export terminals. The company currently accounts for nearly 20% of global NGL exports and is well positioned to leverage its LNG export capacity to serve international buyers amid ongoing Middle-East tensions.
In the first quarter, the firm placed its Gateway NGL Pipeline debottlenecking project into service, enabling higher deliveries of Delaware Basin volumes to Energy Transfer’s NGL fractionation complex at Mont Belvieu. The firm is planning to invest in the range of $5.5-$5.9 billion in growth projects in 2026, which will further strengthen its infrastructure.
ET’s Earnings Estimates Moving North
The Zacks Consensus Estimate for Energy Transfer’s 2026 and 2027 earnings per unit indicates year-over-year growth of 13.22% and 6.47%, respectively.
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The same for Plains All American Pipeline’s 2026 and 2027 earnings per unit indicates year-over-year growth of 7.73% and 8.21%, respectively.
ET’s Return on Equity Lower Than Industry
Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.
Energy Transfer’s trailing 12-month return on equity of 9.77% is lower than the industry’s average of 12.78%.
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Another firm, operating in the space with strong operations, is Delek Logistics Partners DKL. DKL’s current ROE is much better than the industry average.
ET Raises Unitholders' Value
ET’s current quarterly cash distribution rate is 33.75 cents per common unit. Management has raised distribution rates 18 times in the past five years, and the current payout ratio is 112%.
Delek Logistics Partners also distributes cash to its unitholders. DKL’s management has raised distribution rates 20 times in the past five years, and the current payout ratio is 142%.
ET’s Units Are Trading at a Discount
Energy Transfer units are somewhat inexpensive relative to the industry. ET’s current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) is 10.22X compared with the industry average of 12.13X. This indicates that the firm is presently undervalued compared with its industry.
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Wrapping Up
Energy Transfer, backed by its vast pipeline network across major U.S. production regions, is well positioned to benefit from continued growth in domestic oil, natural gas and NGL production. Its fee-based business model further enhances earnings stability and supports long-term value creation for unitholders.
Those who have this Zacks Rank #3 (Hold) stock in their portfolio can stay invested and enjoy the regular cash distribution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Despite a current softness in unit prices, as the firm’s return on equity remains below the industry average, investors may prefer to wait for a more favorable entry point before taking a position.
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Plains All American Pipeline, L.P. (PAA): Free Stock Analysis Report
Energy Transfer LP (ET): Free Stock Analysis Report
Delek Logistics Partners, L.P. (DKL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).