The companies operating in the Zacks Oil and Gas – Production Pipeline industry play a vital role in the energy value chain by transporting and storing the crude oil and natural gas needed to power transportation, industrial operations and households. Beyond ensuring a reliable energy supply, midstream infrastructure enhances energy security, supports economic growth and provides essential feedstocks for petrochemical and fertilizer production. As global energy demand continues to increase, midstream companies remain critical to meeting traditional energy needs while also facilitating the transition to cleaner energy solutions and lower-carbon operations.
Two leading players in the U.S. midstream sector are Plains All American Pipeline L.P. PAA and Energy Transfer LP ET. These firms have extensive pipeline networks that offer a safe, efficient and cost-effective way to transport crude oil, natural gas and refined products over long distances. This critical infrastructure ensures a reliable supply to refineries, power plants and end users while providing a more economical and lower-risk transportation solution than rail or truck alternatives.
Plains All American Pipeline focuses on the transportation, storage and marketing of crude oil and NGLs across North America. Its extensive network of pipelines and terminals is strategically concentrated in prolific production regions such as the Permian Basin, positioning the partnership to benefit from rising hydrocarbon output. Moreover, its predominantly fee-based, long-term contracts provide stable cash flows and reduce exposure to commodity price fluctuations.
Energy Transfer, on the other hand, operates a broader and more diversified midstream portfolio spanning crude oil, natural gas, NGLs and refined products, supported by extensive storage, processing and export infrastructure. Like Plains All American Pipeline, it maintains a significant presence in the Permian Basin. The company’s ownership of assets such as the Dakota Access Pipeline and interests in export terminals further enhances its scale, market reach and cash flow generation capabilities.
With U.S. oil and natural gas production continuing to grow, demand for midstream transportation, storage and processing services remains strong. Per a report from Fortune Business Insights, the global oil & gas pipeline market is projected to grow from $122.22 billion in 2026 to $195.09 billion by 2034. Against this favorable backdrop, a closer examination of the fundamentals of these two midstream firms can help determine which stock currently offers the more compelling investment opportunity.
PAA & ET’s Earnings Per Unit Growth Projections
The Zacks Consensus Estimate for Plains All American Pipeline’s 2026 earnings has decreased 4.29% in the past 60 days, while 2027 estimates increased 2.48% in the same timeframe.
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The same for Energy Transfer’s 2026 and 2027 earnings has decreased 4.67% and 4.4%, respectively, in the past 60 days. The above discussion indicates both firms are facing near-term headwinds, but Plain All Pipeline is showing some recovery for 2027.
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Debt to Capital
The oil and gas midstream industry is capital-intensive. The firms operating in this space need to borrow to fund their capital projects.
At present, ET’s debt to capital is 58.23%, higher than PAA’s 47.02%. This indicates ET’s management is utilizing a higher percentage of debt to run its operation compared with PAA.
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Return on Equity
Return on Equity (“ROE”) is an important measure of financial performance that indicates how efficiently a company converts shareholder equity into profits. It highlights management’s effectiveness in utilizing invested capital to grow earnings and enhance shareholder value.
ET’s current ROE is 9.77% compared with PAA’s 12.17%. This indicates PAA’s management is utilizing its funds marginally better than Energy Transfer.
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Valuation
Plains All American Pipeline’s units are trading at a premium compared with Energy Transfer. PAA’s current trailing 12-month Enterprise Value/Earnings before Interest, Tax, Depreciation and Amortization (EV/EBITDA) is 11.8X compared with Energy Transfer’s 9.94X.
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PAA and ET’s Cash Distribution
Midstream companies generate substantial cash flow primarily due to fee-based contracts and regulated tariffs that constitute a significant portion of their income. Both firms generate cash flows, a substantial portion of which is distributed among their unitholders.
Plains All American Pipeline’s current cash distribution yield is 7.83%. The firm has raised its distribution five times over the last five years. The annualized average distribution growth for the last five years is 20.92%.
Energy Transfer’s current cash distribution yield is 7.2%. The firm has raised its distribution 18 times in the last five years. The annualized average distribution growth for the last five years is 19%.
Price Performance
Plains All American Pipeline’s units have gained 20.7% in the past six months compared with Energy Transfer’s rally of 15.5%.
Price Performance (Six months)
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Wrapping Up
PAA and ET deliver efficient services across their respective operating regions, supported by extensive infrastructure in the prolific Permian Basin.
Based on the above discussion, Plains All American Pipeline has a clear edge over Energy Transfer due to better ROE, lower percentage of debt usage, stronger earnings estimates movement in 2027 and better price performance.
Although both firms currently carry a Zacks Rank #3 (Hold), Plains All American Pipeline appears to be favorably placed to provide better returns to the investors.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).