Energy Transfer Raises EBITDA Guidance Again - Still the Cheapest Big Midstream for a Reason

Energy Transfer has raised its full-year 2026 Adjusted EBITDA guidance to $18.8B–$19.1B, continuing a string of upward revisions that started at $17.45 billion and $17.85 billion back in February. The company reports second-quarter results today. For someone who has watched this name for years, the pattern is the same: the fundamentals keep improving while the valuation stays anchored at a deep discount. The gap between what the business is doing and what the market is paying for it has not closed - and that is the point of the trade.

Let me start with the operational picture, because that is where the thesis lives. Adjusted EBITDA - earnings before interest, taxes, depreciation, and amortization, the closest proxy to the cash this midstream business generates - jumped 20% year-over-year in the first quarter of 2026 to $4.94 billion, up from $4.10 billion. That quarter alone puts the Partnership ahead of pace for the full-year midpoint of the original guidance range, which is precisely why management has raised the bar three times now. Q4 2025 came in at approximately $4.2 billion, already above Q4 2024's $3.9 billion. The trajectory is clear: volumes across crude, NGLs, gas processing, and terminals are all growing, with NGL and refined products terminal volumes up 19%, crude transportation up 8%, and NGL fractionation volumes up 11% in Q1.

What drives these volumes is not commodity prices. The vast majority of Energy Transfer's revenue comes from long-term fee-based contracts - take-or-pay agreements that obligate shippers to pay for capacity whether or not they use it. That is the structural moat. You are not betting on oil or gas prices here. You are betting on throughput growth on contracted infrastructure, and the record volumes across multiple segments show that growth is real.

The distribution - the cash paid out to unitholders - is also holding up. Distributable cash flow attributable to partners was $2.7 billion in Q1 2026, up from $2.31 billion, a 17% increase. Management raised the quarterly distribution to $0.3350 per unit in February, which annualizes to $1.34. At today's price near $20.28, that works out to a forward dividend yield of approximately 6.5%. For context, the S&P 500 yield is roughly 1.3%. The spread is not a rounding error.

Now let's talk about valuation, because this is where the opportunity crystallizes. Energy Transfer trades at approximately 9.0 times EV/EBITDA on a trailing basis. Oneok, a comparable pure-play midstream operator, trades at 11.9 times. Enterprise Products at 18.0 times. Williams Companies at 16.8 times. That peer discount - roughly 25% below Oneok and over 50% below Enterprise Products - is not because Energy Transfer's cash flows are fundamentally riskier. The fee-based model is the same. The growth trajectory, as the guidance raises demonstrate, is at least as strong.

The discount exists because Energy Transfer carries a large balance sheet. Total debt stands at $97.49 billion, with net debt of $68.39 billion. Debt-to-equity is 138.7%. Those numbers are not trivial, and any fair analysis has to address them.

While it's true that the leverage profile is heavier than Oneok or Enterprise Products, the cash flow backing that debt is growing faster. Operating cash flow over the trailing twelve months came in at $10.61 billion. On a midpoint of the new guidance range - $18.95 billion of Adjusted EBITDA - that implies the business is generating cash more than sufficient to service its obligations. The net interest coverage on an EBITDA basis works out to well above 4 times, which is the zone where lenders feel comfortable. The partnership has been systematically deleveraging for years, and the guidance raises give it more room to do so.

From a free cash flow perspective, the trailing twelve-month figure of $3.615 billion, down 40% year-over-year, deserves scrutiny. The decline reflects heavy growth capital expenditure of roughly $7.0 billion as the Partnership builds new pipeline capacity - the Gateway NGL debottlenecking project, the Mustang Draw processing plant, Florida Gas Transmission Phase IX, the Springerville Lateral, and the Nexus AI campus gas connections. These are not discretionary expenses. They are capacity investments backed by 15- to 25-year shipper agreements, meaning future EBITDA growth is already contracted. Free cash flow will expand as the capex cycle moderates and these projects come online. The Q1 guidance of $5.5 billion to $5.9 billion for 2026 growth capital is below the TTM burn rate, which supports that view.

The strategic pipeline is also broadening. Energy Transfer recently entered agreements to support the Nexus Hubbard Campus, a behind-the-meter AI hyperscale data center powered by natural gas generation in central Texas. It extended its Nederland ethane export agreements through 2041, adding a decade to existing contracts. Transwestern Pipeline is advancing a Desert Southwest expansion. These are not speculative options. They are contracted or near-contracted growth that will feed the EBITDA runway beyond 2026.

From a risk perspective, the primary concern remains the scale of the balance sheet. Even if the business delivers the upper end of the new $18.8B–$19.1B EBITDA range, total debt of $97.5 billion will not disappear overnight. Refinancing risk in a higher-rate environment is real, though the partnership has a diversified capital structure with staggered maturities. A second-order risk is regulatory: FERC pre-filings like Transwestern's Desert Southwest expansion face permitting timelines that can stretch years and encounter opposition. These are execution risks, not thesis-breakers, but they justify why the market applies a discount.

Even if you are uncomfortable with the leverage, the valuation math still supports a position. At 9.0 times EV/EBITDA, a re-rating to just Oneok's 11.9 times - a peer with a similar fee-based model and smaller scale - would imply roughly 30% upside on the current share price. You do not need Enterprise Products-level multiples to see the case. You just need the market to acknowledge that Energy Transfer's cash flows are not 25% worse than Oneok's, which the Q1 results and guidance revisions actively contradict.

All things considered, the cash-flow profile is accelerating, the distribution appears well-covered at 6.5%, and the peer discount still creates meaningful upside if the balance sheet continues its deleveraging trajectory. I reaffirm my Strong Buy rating.