Is NGL Energy Partners a High-Conviction Buy After a 135% Rally and Rating Upgrade?

In the volatile world of energy infrastructure, NGL Energy Partners LP (NYSE:NGL) has emerged as a focal point for investors seeking value in a post-recessionary market. The company's 135% stock price rally in 2025, coupled with a recent credit rating upgrade, has sparked debate about its investment potential. This analysis evaluates NGL through the lenses of value investing and earnings momentum, dissecting its financial performance, debt trajectory, and market valuation to determine whether the rally is justified-or if the stock remains a compelling opportunity.

Financial Performance: A Tale of Two Segments

NGL's third-quarter 2025 results revealed a mixed bag. While the Water Solutions segment drove growth with a 10.4% increase in produced water processing volumes and a $132.7 million in EBITDA, the Liquids Logistics segment saw a sharp decline to $8.2 million in adjusted EBITDA from $26.3 million in the prior year according to financial reports. The company's full-year EBITDA guidance of $620 million reflects a strategic pivot toward simplifying its asset base, with asset sales-including 17 natural gas liquids terminals and railcars-generating a $270 million in proceeds. These moves have improved liquidity to $283.7 million as of September 30, 2025, but they also highlight the fragility of NGL's earnings model.

Despite these efforts, NGL missed both its EPS and revenue forecasts in Q3 2025, reporting a loss of $0.12 per share and $1.55 billion in revenue, below expectations of $0.19 and $1.71 billion, respectively. This underscores a critical challenge: while the Water Solutions segment is a growth engine, the broader portfolio remains vulnerable to sector-specific headwinds.

Credit Rating Upgrade: A Step Forward, But Risks Remain

Fitch's affirmation of NGL's IDRs at 'B' with a stable outlook in November 2025 signaled cautious optimism. The rating agency cited improved liquidity and deleveraging efforts, including a debt-to-EBITDA ratio of 4.7x in 2024–2025, projected to fall to 4.5x in 2026. S&P Global also noted progress, though analysts remain wary of NGL's high debt load.

The upgrade is a positive catalyst, but it must be contextualized. NGL's net losses, though narrowing at 36% annually over five years, still persist. For value investors, the key question is whether the company's deleveraging trajectory and asset sales will translate into sustainable profitability. The answer hinges on execution: NGL's 2026 EBITDA guidance of $615–$625 million according to financial reports assumes continued strength in the Water Solutions segment and disciplined capital allocation.

Stock Valuation Post-Rally: Momentum vs. Fundamentals

NGL's stock price surged 47.37% between October 31 and November 7, 2025, and has gained 83% year-to-date according to market data. This momentum is driven by strong Q2 2026 results, including a $29.8 million income from continuing operations (vs. $7.5 million in 2024) and a raised EBITDA guidance to $650–$660 million. Institutional and insider buying further validate confidence in the company's turnaround.

However, valuation metrics tell a nuanced story. NGL trades at a price-to-sales ratio of 0.4x, below the industry average of 1.5x, suggesting value. Yet a discounted cash flow model estimates a fair value of $2.71 per share, far below the current $9.85 price according to financial analysis. This discrepancy implies the market is pricing in aggressive growth assumptions, which may or may not materialize. For value investors, the challenge lies in balancing the company's low P/S ratio with its lack of profitability and elevated debt.

Earnings Momentum: A Double-Edged Sword

NGL's earnings momentum is undeniable. The Water Solutions segment's record volumes and Grand Mesa growth have driven a 30% year-over-year increase in income from continuing operations. Additionally, new producer commitments of 500,000 barrels per day according to market reports provide a tailwind for 2026.

Yet momentum alone is not a sufficient criterion for high-conviction buys. NGL's reliance on asset sales to fund operations raises concerns about long-term sustainability. The company's capital allocation strategy-prioritizing debt reduction over shareholder returns-also limits upside potential for equity holders.

Conclusion: A High-Risk, High-Reward Proposition

NGL Energy Partners presents a paradox for value investors. On one hand, its strategic divestitures, improved liquidity, and credit rating upgrade signal progress. On the other, its ongoing losses, high debt, and valuation premium to intrinsic value suggest caution. The 135% rally reflects optimism about the Water Solutions segment's growth and the broader energy recovery, but it also compresses the margin of safety typically sought by value investors.

For those with a high-risk tolerance, NGL could be a speculative play if the company executes on its 2026 guidance and continues to delever. However, for high-conviction value investing, the stock appears overvalued relative to fundamentals, despite its momentum. Investors should monitor NGL's ability to sustain earnings growth and reduce debt without relying on further asset sales.