Morningstar

Energy Transfer Earnings: Strong Performance Boosts EBITDA and Capex Guidance

We’ve raised our fair value estimate of Energy Transfer stock.

The Energy Transfer logo is displayed on a smartphone screen.
Cheng Xin via Getty
Securities in This Article
Energy Transfer LP
(ET)

Key Morningstar Metrics for Energy Transfer

  • Fair Value Estimate
    : $24.00
  • Morningstar Rating
    : ★★★★
  • Morningstar Economic Moat Rating
    : None
  • Morningstar Uncertainty Rating
    : Medium

What We Thought of Energy Transfer’s Earnings

Energy Transfer ET posted first-quarter adjusted EBITDA of $4.9 billion, $400 million above the high end of PitchBook consensus. Management raised the midpoint of full-year EBITDA guidance to $18.40 billion from $17.65 billion and capital expenditure to $5.70 billion from $5.25 billion.

Why it matters: Management attributed $300 million of the $500 million budget outperformance to meeting full-year targets in the first quarter, largely driven by capturing commodity spreads. The remaining $200 million is due to increased volumes and favorable contracting.

  • Volumes are likely to continue improving as producers have begun to revise their production plans higher due to elevated commodity prices. This benefit will accrue across the portfolio through greater demand for well-to-water services as global buyers seek replacement supply.
  • Capital expenditures were revised up as spending is pulled forward to support new projects like the Springerville lateral and near-term projects added to the backlog. Further data center exposure was added as firm gas services rather than marketing agreements.

The bottom line: We are increasing our fair value estimate to $24 per share from $22. Half of the increase was driven by our new methodology for cost of capital, which we lowered to 7.8% from 7.9%. Improved volumes and temporary commodity gains drove the remainder.

  • Energy Transfer remains a top pick; it’s trading in 4-star territory with multiple ways to play US energy. While natural gas is rightfully the focus of investors, the firm’s liquids portfolio should not be overlooked as producers pivot back toward growth.
  • Our no-moat, Poor Capital Allocation, and Medium Uncertainty Ratings are unchanged.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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