Is Energy Transfer a Hidden Gem in Goldman Sachs' 2025 Value Stock Strategy?

Energy Transfer LP (NYSE: ET) has emerged as a focal point for investors seeking value in the energy sector, but does it qualify as one of Goldman Sachs' top picks for 2025? While the firm’s Q4 2024 portfolio highlights Exxon Mobil, Berkshire Hathaway, and Home Depot as its leading value bets, recent Goldman analysis and broader market dynamics suggest ET merits consideration as a compelling, though nuanced, opportunity.

Goldman’s Value Stock Framework: Where Does ET Stand?

Goldman Sachs’ 2025 value stock criteria prioritize companies with P/E ratios ≤25, strong cash flows, and alignment with defensive sectors. Its top picks—Exxon (P/E 12.85), Berkshire (P/E 11.93), and Home Depot (P/E 22.47)—reflect a focus on stability amid macroeconomic uncertainty. ET’s P/E ratio of 15.39 (as of April 2025) fits within this range, while its 6.94% dividend yield and $64.27 billion market cap underscore its appeal to income-focused investors.

However, Goldman’s Neutral rating on ET signals tempered enthusiasm. Analysts raised the price target to $20 (from $19) in early 2025 but highlighted execution risks, including debt management and margin pressures. Let’s dissect the factors driving this mixed outlook.

Valuation and Financial Health: Strengths and Weaknesses

ET’s value case hinges on its dividend resilience and strategic asset base. The company has increased dividends for three consecutive years and maintained payouts for two decades, offering stability in volatile markets. Its $1.29 annual dividend (6.16% yield as of April 2025) aligns with Goldman’s emphasis on cash returns.

Yet, ET’s debt-to-equity ratio of 1.72 raises red flags. While its $1 billion senior notes offering (via subsidiary Sunoco LP) signals proactive debt management, leverage remains a concern. Compare this to Exxon’s 12.85 P/E and $23.2 billion cash reserves, which offer a clearer margin of safety.

Earnings and Growth Catalysts: Permian Potential vs. Execution Risks

Goldman’s Q1 2025 EBITDA forecast of $16.2 billion reflects cautious optimism. Key drivers include:
1. Permian Basin Momentum: ET’s midstream assets in the Permian Basin benefit from rising shale production, with colder weather boosting gas demand.
2. LNG and Data Center Growth: Natural gas demand from LNG exports and data centers could unlock $660 million in incremental EBITDA by 2026.

However, Goldman trimmed its Q1 EBITDA estimate by 6% due to slower volume growth in non-core segments. The upcoming Q1 earnings report (May 6, 2025) will test management’s ability to balance capital allocation between shareholder returns and growth projects.

Analyst Sentiment: Neutral vs. Bullish Crosscurrents

Goldman’s Neutral stance contrasts with broader bullishness:
- UBS upgraded ET to Buy with a $24 target, citing operational efficiencies.
- RBC Capital Markets reaffirmed Outperform, highlighting its strategic position in natural gas.

The stock’s 7.67% surge on April 9, 2025—driven by JPMorgan’s Focus List addition—suggests institutional momentum, even without Goldman’s explicit endorsement.

Conclusion: A Value Play with Strings Attached

Energy Transfer LP fits Goldman’s value criteria on paper but falls short of the firm’s “top stock” list due to leverage concerns and execution risks. While its dividend, Permian exposure, and legal victories (e.g., a $660M Greenpeace ruling) bolster its case, investors must weigh its 1.72 debt-to-equity ratio against peers like Exxon.

For now, ET is a contender, not a leader, in Goldman’s value strategy. The stock trades at a P/E of 15.39, below the sector’s 35.1x average, offering potential upside if earnings beat forecasts. Yet, its success hinges on navigating debt, capitalizing on gas demand, and outperforming Goldman’s muted 2025 EBITDA expectations.

In a market where value stocks like Exxon and Home Depot dominate, ET’s inclusion in JPMorgan’s Focus List and its dividend appeal position it as a sector-specific alternative—ideal for investors willing to tolerate risk for income and growth. For a spot among Goldman’s elite picks, however, ET must prove its ability to sustain margin expansion and deleverage—a challenge that could redefine its value narrative in 2025 and beyond.