Units of Energy Transfer LP ET have rallied 16.5% in the past six months compared with the Zacks Oil and Gas - Production Pipeline - MLB industry’s growth of 19% and the Zacks Oil-Energy sector’s rise of 18.3%.
The oil and gas midstream firm owns a wide network of pipelines across the United States and is pursuing opportunities to serve increasing power loads from new demand centers across its network. However, escalating operating costs, coupled with softer commodity prices, have adversely impacted the company's earnings per unit over the past three reported quarters.
Price Performance (Six Months)
Another firm with a significant U.S. midstream footprint is Energy Transfer's peer, Plains All American Pipeline LP PAA. Like Energy Transfer, Plains generates a substantial portion of its revenues through fee-based contracts, providing stable and predictable cash flows. Over the past six months, the stock has rallied 23.7%, outperforming both its industry and the broader energy sector.
With Energy Transfer's units currently under pressure, investors may be wondering whether this current softness presents an attractive buying opportunity. Let's take a closer look at the key factors that could help determine whether Energy Transfer deserves a place in your portfolio at current levels.
Key Factors Supporting ET's Investment Case
Energy Transfer operates one of the largest and most diversified midstream networks in the United States, with more than 140,000 miles of pipelines and related infrastructure spanning 44 states. Its strategically located assets across major oil and gas production basins and high-demand markets — including pipelines, gathering and processing systems, and storage facilities — provide a resilient and well-balanced earnings base.
The partnership also benefits from a stable, fee-based business model. Nearly 90% of its revenues are generated through long-term fee-based transportation and storage contracts with a diversified customer base, significantly limiting exposure to commodity price fluctuations while supporting predictable cash flows.
Energy Transfer continues to strengthen its long-term growth outlook through a combination of organic expansion projects, strategic acquisitions and partnerships. The company is expanding its natural gas, NGL and crude oil infrastructure to meet rising domestic and international energy demand. Recent initiatives include the startup of the Gateway NGL pipeline debottlenecking project, commissioning of the Mustang Draw I processing plant, ongoing fractionation and ethane storage expansions at Mont Belvieu and the Bayou Bridge pipeline expansion.
The partnership is also reinforcing its leadership in energy exports. With NGL export capacity exceeding 1.4 million barrels per day and additional expansion projects underway at the Marcus Hook and Nederland export terminals, Energy Transfer is well positioned to capitalize on growing global demand. Holding an estimated 20% share of worldwide NGL exports, the company is expected to benefit from increasing international trade flows and expanding LNG export activity.
ET’s Earnings Estimates Moving North
The Zacks Consensus Estimate for Energy Transfer’s 2026 and 2027 earnings per unit indicates year-over-year growth of 18.18% and 6.91%, respectively.
The same for Plains All American’s 2026 and 2027 EPU indicates an increase of 1.3% and 5.79%, respectively, year over year.
ET Raises Unitholders' Value
ET’s current quarterly cash distribution rate is 33.75 cents per common unit. Management has raised distribution rates 18 times in the past five years, and the current payout ratio is 112%.
Another firm, operating in the space with strong operations, Delek Logistics Partners DKL, 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 142%.
ET’s Units Are Trading at a Discount
Energy Transfer units are somewhat inexpensive relative to the industry. ET’s current trailing 12-month Enterprise Value/Earnings before Interest, Tax, Depreciation and Amortization (EV/EBITDA) is 10.03X compared with the industry average of 11.73X. This indicates that the firm is presently undervalued compared with its industry.
Delek Logistics Partners is currently trading at a premium to its industry. DKL’s EV/EBITDA multiple is 16.44X higher than its industry.
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 company indicates that it is using shareholders’ funds more efficiently than peers.
Energy Transfer’s trailing 12-month ROE is 9.77%, lower than the industry’s 12.8%.
ET’s Debt to Capital
The midstream industry is capital intensive and the firms operating in this space need to make substantial investments to build up the pipeline network and related infrastructure. In addition, a substantial amount is needed to maintain the assets properly.
Energy Transfer also requires to borrow fund to continue with its long-term capital projects and serve its customers. ET’s debt to capital is 58.23, a tad higher than its industry average of 56.88.
Summing Up
With more than 140,000 miles of pipelines and related infrastructure, Energy Transfer is well positioned to benefit from sustained growth in U.S. oil, natural gas and NGL production. Its predominantly fee-based business model provides stable, predictable cash flows, enhancing earnings visibility and supporting long-term value creation for unitholders.
ET’s current discounted valuation and rising earnings estimates make it attractive in the midstream space.
However, with return on equity currently trailing the industry average and debt levels higher than industry peers, prospective investors may want to wait for a more favorable entry opportunity before initiating a position.
ET currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Energy Transfer LP (ET): Free Stock Analysis Report
Plains All American Pipeline, L.P. (PAA): Free Stock Analysis Report
Delek Logistics Partners, L.P. (DKL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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