Riding the Energy Wave: Is Energy Transfer Still a Buy After Its 35% Gain?

Energy Transfer (ET) has been a standout performer this year, with its units surging over 35%. The midstream energy company's impressive rally has been driven by strategic acquisitions, organic growth projects, and increased demand for gas pipeline capacity. But as investors ponder whether to continue pouring money into ET, let's analyze the company's recent performance, growth prospects, and valuation to determine if the rally is sustainable.



A Year of Acquisitions and Growth

Energy Transfer's acquisitions have been a significant catalyst for its rally. In 2024, the company wrapped up several notable deals, including the acquisition of Crestwood Equity Partners and WTG Midstream. These transactions have not only strengthened ET's balance sheet but also contributed to its strong operational performance. The company set several volume records in the third quarter and is on track to increase its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by 12% in 2024.



Growing Demand for Gas Pipeline Capacity

Energy Transfer's expansion into LNG export terminals, such as the Lake Charles LNG project, has also significantly contributed to the company's growth. This project alone has the potential to add $0.04 per share to distributable cash flow next year, increasing to $0.07 per share by 2027. Additionally, the surge in demand for gas pipeline capacity, fueled by growing power demand and AI data centers, has further bolstered ET's prospects.

Valuation and Growth Prospects

Energy Transfer's 35% rally this year has left it trading at just 9x enterprise value-to-EBITDA, near the bottom of its peer group. Despite its high-yielding distribution (6.8%), the company is not overvalued, and its strong financial metrics, including DCF coverage and leverage ratio, support its growth prospects. With visible organic cash flow growth and a pipeline of development projects, Energy Transfer remains a compelling investment opportunity.

Looking Ahead

Regulatory changes under a Trump administration, such as pro-energy policies, less regulation, and increased domestic energy production, could further benefit Energy Transfer. A focus on broad economic growth, driven by tariffs as a threat, energy expansion, and manufacturing revival (Scott Bessent's predictions), could lead to increased demand for ET's services, driving further growth and enhancing its already strong operational and financial performance in 2024.



In conclusion, Energy Transfer's impressive rally this year has been fueled by strategic acquisitions, organic growth projects, and increasing demand for gas pipeline capacity. Despite its strong performance, the company remains attractively valued, with a high-yielding distribution and robust growth prospects. As long as Energy Transfer continues to execute on its growth strategy and benefit from favorable regulatory changes, investors can expect the rally to continue. However, potential risks and challenges, such as those associated with acquisitions and geopolitical tensions, should be carefully considered before making an investment decision.