Energy Transfer LP (ET) units are currently being viewed as relatively undervalued compared to their peers in the Zacks Oil and Gas Production Pipeline – MLB industry. The company’s trailing 12-month Enterprise Value to EBITDA (EV/EBITDA) ratio is at 10.25X, notably lower than the industry average of 11.67X. This disparity suggests that ET is trading at a discount, prompting investors to consider whether this might be the right time to add the stock to their portfolios.
Energy Transfer operates an extensive pipeline network that spans over 130,000 miles across 44 states in the United States. The company has been actively pursuing opportunities to serve growing power loads from new demand centers throughout its network. In a similar vein, Plains All American Pipeline (PAA) is also trading at a discount with an EV/EBITDA of 9.2X, indicating a broader trend in the sector.
Despite this valuation, ET stock has underperformed its industry over the past six months. Investors are left pondering whether the current softness in prices and the discounted valuation makes for a compelling entry point. To assess this, it’s essential to delve deeper into the factors influencing ET’s stock performance.
Energy Transfer’s robust infrastructure is a significant asset, as nearly 90% of its revenues are derived from fee-based contracts related to transportation and storage services. These long-term agreements with a reliable customer base ensure stable cash flows, effectively mitigating the company’s exposure to fluctuations in commodity prices. As oil and gas production continues to rise across the United States, ET stands poised to benefit from the increasing demand for pipeline transportation infrastructure.
Furthermore, Energy Transfer boasts substantial export capabilities, with natural gas liquids (NGL) and crude oil export capacities exceeding 1.1 million and 1.9 million barrels per day, respectively. The company is actively enhancing its export infrastructure, particularly at its Marcus Hook and Nederland terminals. Notably, ET commands an estimated 20% share of the global NGL export market, underscoring its strong position in international energy trade.
The strategic distribution of Energy Transfer’s asset base across key U.S. production basins and high-demand regions provides robust support for earnings. This diversified portfolio includes a balanced mix of oil and gas pipelines, gathering and processing facilities, and storage assets, enabling the company to efficiently serve a wide range of markets.
Since 2021, Energy Transfer has consistently executed one major accretive acquisition annually, including the recent purchase of WTG, which has enhanced its natural gas pipeline and processing infrastructure in the Permian Basin. This strategy not only expands its operational footprint but also strengthens its market position.
In summary, while Energy Transfer LP is currently trading at a discount compared to its industry peers, potential investors must weigh this against the company's recent performance and broader market conditions. As the energy sector continues to evolve, ET's extensive network and strategic initiatives position it well for future growth.
Analysts emphasize that past performance is not indicative of future results, and caution should be exercised when considering investments in the energy sector. They also note that no recommendation or advice is being provided regarding whether any investment is suitable for a particular investor. Investors are encouraged to conduct thorough research and consider their financial situations before making investment decisions.
As the energy landscape continues to shift, Energy Transfer LP remains a significant player, with its extensive pipeline network and strategic growth initiatives suggesting potential for recovery and growth in the coming months.
