Energy Transfer Is A Value Among High-Yield Energy Infrastructure

Published on

The entire energy infrastructure complex is moving higher and Energy Transfer LP (NYSE:ET) may lead the bunch. The company’s diversified approach to energy and its reliance on fee-based income make it stand out from other energy companies and its own peers. Trading at 7.33X its earnings it is a value compared to peers like Kinder Morgan (NYSE:KMI), Enbridge (NYSE:EN), and The Williams Companies (NYSE:WMB) which trade in the range of 15X to 20X their earnings and there is no difference in dividend yield.

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q2 2022 hedge fund letters, conferences and more


Find A Qualified Financial Advisor

Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisors that can help you achieve your financial goals, get started now.

Energy Transfer is paying out a solid 6% with shares trading near $11.25 compared to 5.1% with The Williams Companies and 6.15% for Kinder Morgan and the good news does not end here. Energy Transfer cut is dividend distribution at the start of the pandemic in order to preserve capital and it is on track to return the payment to its former glory. This means investors can expect a whopping 32% worth of distribution increases and there is a high probability the company will continue to increase the payout beyond the pre-pandemic levels because the outlook for business is robust.

“In July 2022, Energy Transfer announced a quarterly cash distribution of $0.23 per common unit ($0.92 annualized) for the quarter ended June 30, 2022. This distribution represents a more than 50% increase over the second quarter of 2021. Future increases to the distribution level will continue to be evaluated quarterly with the ultimate goal of returning distributions to the previous level of $0.305 per common unit per quarter ($1.22 annualized) while balancing the Partnership’s leverage target, growth opportunities and unit buybacks,” said the company in the press release.

Energy Transfer Results Fueled By Expansion

Energy Transfer had a great quarter that was fueled not only by underlying demand but by expansion in key areas. The company has been working to expand capacity in natural gas and petroleum liquids collection, storage, and delivery and those efforts are paying off. The company reported $25.9 billion in net revenue for the 2nd quarter which beat the consensus by 2700 basis points but take that with a grain of salt. The strength was driven by higher volumes across all segments plus the addition of acquisitions made last year. On a segment basis, the natural gas segment was strongest and produced record volumes.

Moving on to the income, the company produced an outsized increase in net earnings which came in more than double last year’s results but there was some margin pressure in regard to adjusted EBITDA and distributable cash flow. The adjusted EBITDA grew by only 22% while the DCF grew a more robust 35% compared to the top-line 71.5% in growth but this is due in large part to aggressive expansion plans. As for the guidance, the company raised and narrowed its guidance for adjusted EBITDA by 3.5% at the low and 1.25% at the high-end of the range.

The Technical Outlook: Energy Transfer Is Trending Higher

Shares of Energy Transfer are trending in line with the rest of the group and are on track to set a new multi-year high in the wake of the results. The stock is up more than 2.0% in premarket trading and already at a multi-week high, if the market follows through on this move it could easily hit the $12.5 level and breakthrough into the new all-time-high territory. In that scenario, the next target is near $14. If no new highs are made this stock may be rangebound for the next few months.

Energy Transfer

Article by Thomas Hughes, MarketBeat