Energy Transfer LP’s ET units are somewhat inexpensive relative to its Zacks Oil and Gas Production Pipeline – MLB industry. ET’s current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) is 10.11X compared with the industry average of 11.96X. It indicates that the firm is presently undervalued compared with its industry peers.
The midstream oil and gas company operates an extensive U.S. pipeline network and is targeting rising power demand from new load centers. It is also a leading LPG exporter and is expanding its NGL export capacity to meet growing global demand.
The ongoing crisis in the Middle East can open up new opportunities for Energy Transfer as demand for secure LNG increases from global buyers. ET’s extensive pipelines will play a vital role in transporting U.S. domestic supply to global markets.
ET’s Valuation
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Another firm having extensive midstream operations in the United States is Plains All American Pipeline PAA. PAA is also trading at an EV/EBITDA of 9.94X, at a discount compared with its industry.
Units of Energy Transfer have gained 14.3% in the past year compared with the industry’s rally of 17%.
Price Performance (One year)
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Should investors consider adding Energy Transfer to their portfolio simply due to its discounted valuation? Let’s take a closer look at the underlying factors to determine whether ET stock presents a compelling entry opportunity.
Extensive Pipelines and Well-balanced Assets Aid ET
Energy Transfer operates over 140,000 miles of pipelines and related infrastructure across 44 U.S. states. Its diversified asset base provides solid earnings stability. The company’s oil and gas pipelines, gathering and processing, and storage facilities are strategically located across key U.S. basins and high-demand markets. The firm plans to invest in the range of $5.0-$5.5 billion in 2026 to further strengthen its operations.
The firm is expanding its operations through organic means, accretive acquisitions and partnerships. Courtesy of its strong asset base, ET has NGL export capacity of more than 1.4 million barrels per day. The firm is working to increase its NGL export capabilities through the expansion of Marcus Hook and Nederland export terminals. The company’s market share of worldwide NGL exports remains around 20%. The firm can utilize its LNG export capacity for exporting LNG to global buyers until the Middle-East crisis is resolved.
Predominantly Fee-Based Saves ET From Price Fluctuation
The majority of Energy Transfer’s revenues come from fee-based contracts supported by a strong customer base. Nearly 90% of its income is generated through charges for transportation and storage services, which helps reduce exposure to commodity price volatility.
With rising oil and gas production in the United States, ET is well-positioned to benefit from increased demand for its pipeline transportation services.
Plains All American Pipeline also generates a substantial amount of its earnings from long-term fee-based contracts.
ET’s Earnings Estimates Moving Up
The Zacks Consensus Estimate for Energy Transfer’s 2026 and 2027 earnings per unit indicates year-over-year growth of 22.31% and 7.34%, respectively.
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Another firm, operating in the space with strong operations, is Delek Logistics Partners DKL. The Zacks Consensus Estimate for Delek Logistics Partners’ 2026 and 2027 earnings per unit indicates year-over-year growth of 25.15% and 22.28%, respectively.
ET Stock’s ROE Is Lower Than the Industry
Return on equity (“ROE”) is a financial ratio that measures how well a company uses its shareholders’ equity to generate profits. The current ROE of the firm indicates that it is using shareholders’ funds less efficiently than its peers.
Energy Transfer’s trailing 12-month return on equity (“ROE”) is 10.17%, lower than the industry average of 12.93%.
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ET Raises Unitholders' Value
ET’s current quarterly cash distribution rate is 33.5 cents per common unit. Management has raised distribution rates 17 times in the past five years, and the current payout ratio is 110%.
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 136%.
Summing Up
With over 140,000 miles of pipelines and related infrastructure, Energy Transfer is well-positioned to capitalize on the continued growth in U.S. oil, natural gas and NGL production. Its fee-based revenue model further strengthens its capacity to generate long-term value for unitholders.
Rising earnings estimates and discounted valuation make this stock attractive. Investors holding this Zacks Rank #3 (Hold) stock can maintain their positions and benefit from its steady cash distributions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Yet, the firm’s current ROE is below the industry average, so new investors may be better off waiting for a more attractive entry point.
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This article originally published on Zacks Investment Research (zacks.com).