The global demand for oil and gas, which bounced back and reached new heights amid supply crunches, could propel its prices and serve as an enduring tailwind for energy producers. Given this backdrop, let us find out whether energy stock Energy Transfer LP (ET) could be an ideal portfolio addition.
When macroeconomic headwinds and geopolitical turmoil drastically affected some of the sectors of the economy, on the contrary, the energy sector performed comparatively well.
The sector is anticipated to maintain its momentum in the foreseeable future, given the soaring demand for oil and gas from Asian economies. According to OPEC’s monthly report, the global oil demand in 2023 is anticipated to grow by 2.33 million barrels per day (bpd), or 2.3%. Furthermore, OPEC’s probable further oil production cut coming month, resulting in a supply crunch, could push the prices higher.
Energy company ET provides energy-related services and owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with approximately 120,000 miles of pipeline and associated energy infrastructure. ET strategic network spans 41 states with assets in all of the major U.S. production basins.
In April 2023, ET announced a quarterly distribution of $0.3075 per common unit ($1.23 annualized) for the quarter that ended March 31, 2023, paid to the shareholders on May 22, 2023. Its annualized dividend translated to a 9.72% yield on the current share price. Its four-year dividend yield is 10.34%.
Over the past year, shares of ET have gained 8.6% to close the last trading session at $12.65. The stock grew 4.1% over the past six months.
Let’s look at some of the factors that could influence ET’s performance in the upcoming months:
Robust Financial Performance
ET’s revenue stood at $19 billion for the fiscal first quarter that ended March 31, 2023. Its operating income grew 11.7% year-over-year to $2.06 billion. The company’s adjusted EBITDA amounted to $3.43 billion, up 2.8% year-over-year. Its net income attributable to partners came in at $1.11 billion, while net income per unit came in at $0.32.
ET’s long-term debt (less current maturities) declined to $47.23 billion as of March 31, 2023, compared to $48.26 billion as of December 31, 2022.
Discounted Valuation
ET’s forward EV/Sales of 1.16x is 36.3% lower than the 1.83x industry average, while its forward Price/Book multiple of 1.24 is 11.1% lower than the industry average of 1.39. Furthermore, its forward Price/Sales multiple of 0.45 is 60.7% lower than the industry average of 1.16.
Favorable Analyst Estimates
The consensus EPS estimate of $0.30 for the fiscal third quarter ending September 2023 and $1.41 for the current year (ending December 2023) indicates 5.1% and 0.9% year-over-year increases.
Likewise, the consensus revenue estimates for the same periods are $22.67 billion and $87.34 billion, respectively.
Wall Street analysts expect the stock to reach $16.88 in the upcoming 12 months, indicating a potential upside of 33.4%.
POWR Ratings Reflect Promising Outlook
ET’s POWR Ratings reflect a promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ET has a B grade for Value, in sync with its lower-than-industry valuation multiples.
ET ranks #13 in the 93-stock Energy – Oil & Gas industry.
In addition to the above-mentioned POWR Ratings, one can see additional ratings for ET here.
Bottom Line
Given ET’s acquisition of Lotus Midstream Operations, LLC, the company expects its adjusted EBITDA for the full year 2023 to be between $13.05 billion and $13.45 billion (raised from the previous estimate range of $12.9 billion to $13.3 billion).
Moreover, ET’s robust financial performance, attractive valuation, and dividend payments could provide a stable return to its shareholders amid a volatile economic scenario. Therefore, this stock could be a wise portfolio addition now.
How Does Energy Transfer LP (ET) Stack Up Against Its Peers?
While ET has been rated B, equating to Buy, one can check out these other stocks within the Energy – Oil & Gas industry: Cheniere Energy, Inc. (LNG) and Weatherford International plc (WFRD), which have an A (Strong Buy) rating, and Centennial Resource Development (CDEV) which has a B (Buy) rating.
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ET shares were trading at $12.65 per share on Monday morning, down $0.08 (-0.63%). Year-to-date, ET has gained 11.81%, versus a 10.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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