Energy Transfer: A Compelling Buy After Latest Distribution Increase?

Energy Transfer (ET), a leading midstream energy company, recently announced a 3.2% year-over-year increase in its quarterly cash distribution, raising it to $0.3225 per unit. This increase, coupled with the company's strong third-quarter results, has investors wondering if now is the time to buy Energy Transfer. This article explores the potential of Energy Transfer as an investment opportunity, considering its recent performance, growth prospects, and valuation.
Energy Transfer's latest distribution increase is a testament to its growing cash flow and commitment to returning value to unitholders. The company's solid Q3 results, with a 25% year-over-year jump in crude volumes, a 6% increase in midstream volumes gathered, and a 12% climb in NGL fractionation volumes, contributed to a $4 million increase in distributable cash flow (DCF) to partners, reaching $1.99 billion. This growth has led to a distribution coverage ratio of 1.8 times, indicating a well-covered distribution.
The company's expansion into AI-driven power demands and LNG export projects has significantly influenced its distribution increase. Energy Transfer has seen increasing power needs across several of its pipelines due to AI and data center demands, positioning it as one of the best-positioned companies to meet this growing demand. Additionally, Energy Transfer's Co-CEO Marshall McCrea expects the Trump administration to bring a "breath of fresh air" to the oil & gas industry by easing up on regulations and enforcement measures, which could further boost its LNG export projects.

Energy Transfer's attractive valuation and yield make it an appealing investment option. The company trades at an enterprise value (EV)-to-EBITDA multiple of just 8.3 times, well below its pre-COVID-19 average of 13.7 and the sector's average of 13.7. Its forward yield of 7.4% is competitive with other midstream MLPs and income-oriented investments, providing a compelling combination of growth and income.
In conclusion, Energy Transfer's latest distribution increase, coupled with its strong Q3 results, presents an attractive investment opportunity. The company's expanding pipeline network, increasing power demands from AI and data centers, and a favorable regulatory environment under the Trump administration position it well for future growth. With an attractive EV-to-EBITDA multiple and a forward yield of 7.4%, Energy Transfer offers a compelling combination of growth and income. However, investors should remain cautious and conduct thorough due diligence before making any investment decisions.