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Is Energy Transfer LP (ET) a Wise Value Pick?

With efforts to expand its footprint and increased quarterly distribution, is energy stock Energy Transfer LP (ET) a value pick at the current price level? Let’s look at the trends of its key financial metrics to find out…

Energy-related services provider Energy Transfer LP (ET) aims to enhance its operative capabilities. In March, the company announced its plans to acquire Lotus Midstream Operations, LLC, for approximately $1.45 billion. This acquisition is expected to expand its footprint in the Permian Basin.

In April, the company also announced an increase in its quarterly dividend from $0.305 per common unit for the fourth quarter of 2022 to $0.3075 per common unit. Its annual dividend of $1.23 yields 9.58% on the current price. Its four-year average dividend yield is 10.34%.

In terms of its forward EV/Sales, ET is trading at 1.16x, 40.4% lower than the industry average of 1.95x. Its forward Price/Sales multiple of 0.46 is 64.3% lower than the 1.28 industry multiple.

Let’s look at the trends of some of its key financial metrics to understand why the stock trading at a discounted valuation could be a solid buy now.

Financial Trajectory of ET: Rapid Rise in Net Income and Revenue Despite Fluctuating Margins

The trend and fluctuations of the trailing-12-month net income for ET highlight a significant transformation over time. Let's illustrate the series data using key points:

  • On September 30, 2020, ET reported a net income at -$272 million. By December 31, 2020, this deficit had escalated to -$648 million.
  • However, a noticeable turn of events was observed in 2021. Firstly, on March 31, ET showed a substantial positive swing, with net income surging to $3.495 billion. By June 30, 2021, this figure had marginally risen to $3.768 billion and further increased to $5.185 billion on September 30. A peak was reached on December 31, 2021, when net income hit $5.47 billion.
  • The year 2022 began with a slight decrease to $3.451 billion on March 31 but picked up speed again to reach $4.151 billion by June 30 momentarily before slipping to $4.522 billion on September 30. The net income ended the year brighter, with a $4.756 billion value on December 31, 2022.
  • Moving into 2023, the data shows a slight decrease on March 31, with the net income being reported at $4.6 billion.

Calculating the growth rate from the start of the data series, there's a substantial increase from -$272 million to $4.6 billion. This reflects a marked transformation in the financial performance of the company - from being in deficit to becoming highly profitable. Please note that the data suggest greater fluctuations during 2021, which consequently stabilized in the latter part of 2022 and moving into 2023.

The trailing-12-month revenue of ET has displayed a trend of substantial growth over the evaluated period.

  • The data begins at $42.64 billion on September 30, 2020, and then fluctuates, dropping to $38.954 billion by December 31, 2020, before beginning a consistent upward trend in the following year.
  • Throughout 2021, the revenue shows an upward trajectory, beginning with $44.322 billion on March 31 and concluding the year with a significant increase, reaching $67.417 billion by December 31, 2021.
  • The uptrend persists into 2022, where by the end of the second quarter (June 30), it escalated to an impressive $81.757 billion. This trajectory continues, reaching $89.876 billion on December 31, 2022.
  • Notably, the record dips slightly in the first quarter of 2023 to $88.38 billion. While there were slight fluctuations early on, greater emphasis was placed on the growth observed in the latter part of the series, reflecting a progressive rise in ET's revenue.

The calculated growth rate from the first value to the last is significant, nearly doubling from $42.64 billion to $88.38 billion. Despite the slight dip in 2023, this data highlights a predominantly positive growth trend for ET.

ET has reported fluctuations in its Return On Assets (ROA) over a few years. Here is a summary:

  • As of September 30, 2020, the ROA was -0.003, translating to a negative return.
  • ROA decreased to -0.007 by December 31, 2020, indicating a downward trend for ET's assets.
  • However, the start of 2021 marked a significant upswing, with ROA reaching positive figures at 0.037 by March 31 and rising slightly to 0.038 by June 30.
  • This upward trend continued towards the end of 2021, with ROA reaching 0.052 by September 30 and maintaining it till December 31.
  • In 2022, the ROA experienced a minor dip to 0.03 by the end of Q1 but gradually increased in subsequent quarters, resting at 0.036 by June 30, 0.038 by September 30, and solidifying slightly to 0.04 by the end of the year.
  • In 2023, a slight decrease occurred in Q1, bringing the ROA value to 0.039 on March 31.

On calculating the growth rate from the initial to the final value, the ROA shows an overall increasing trend despite minor fluctuations. The ROA grew significantly from the first step of -0.003 (September 2020) to the last value of 0.039 (March 2023), demonstrating a turnaround in ET's asset returns.

This growth, coupled with the greater emphasis on recent data, suggests a generally positive trajectory for the ROA amidst the documented fluctuations.

The data series represents the analyst price target of ET from November 2021 to July 2023.

  • Starting at $13.5 in November 2021, the price target decreased to $14 in December 2021.
  • From December 2021 to May 2022, the value remained consistent at $14 before observing gradual increases throughout late May and June 2022, eventually reaching $15.
  • The price target then remained stable at $15 till September 2022, after which a series of slight increases led to the value of $16 by October 2022.
  • Notably, a brief drop was observed to $15.6 on October 21, but it quickly recovered to $16 the following week.
  • The trend continued, and by the end of December 2022, an increase to $16.5 was recorded.
  • Starting in February 2023, the price target increased substantially, reaching $17 and maintaining this figure until the last timestamp in July 2023.

In summary, over about 20 months, the analyst price target for ET experienced steady growth with minor fluctuations. The growth rate achieved from the initial value of $13.5 to the final value of $17 presents a percentage increase of approximately 26%.

This signifies a favorable sentiment from analysts towards ET over this period. Emphasizing recent trends, the analyst price target remained at $17 consistently from February 2023 to July 2023, reflecting stability in analysts' perceptions of ET's prospects.

ET's Share Stability: A Detailed Review of Six-Month Stock Performance (January-July 2023)

Overall, there is a mild fluctuation in ET’s share prices over this period (January - early July 2023) with minor increases and decreases. From the start to the last point of the data, the share price of ET grew by approximately 2.6%.

There doesn't seem to be a clear and steadily accelerating or decelerating trend within these several months; instead, the stock seems to be maintaining a fairly steady level with slight monthly increases and decreases. Here is a chart of ET's price over the past 180 days.

Assessing POWR Ratings: ET's Momentum, Value, and Stability Trends in 2023

ET, belonging to the Energy - Oil & Gas category of stocks comprising 91 stocks, has exhibited a fluctuating overall POWR Ratings grade throughout the first seven months of 2023. A summarized insight into its performance based on provided data is as follows:

  • The stock started the year 2023 with an overall grade of C (Neutral) in January and maintained this grade until the end of February. Its rank in the category varied slightly, showing figures such as #39, #38, and #40, and eventually settled at #35 by the end of February 2023.
  • In March, the POWR Ratings grade improved to B (Buy) in the first week but soon slipped back to C (Neutral). It remained at C for the rest of March. The rank in the category for ET showed improvement, closing the month at #26.
  • A similar fluctuating pattern between B (Buy) and C (Neutral) grades continued through April. However, the rank in the category consistently improved, achieving a position of #22 in the third week before rising to #33 in the last week of April.
  • The situation improved from May 2023 onwards; the POWR Ratings grade was mostly maintained at B (Buy). ET's rank in the category made significant strides, reaching as high as #8.
  • As of the latest available data (July 6, 2023), ET holds a POWR Ratings grade of B (Buy) and an impressive rank of #6 in the category.

In conclusion, despite some ups and downs, ET has shown a general improvement trend in terms of overall grade and rank in the Energy - Oil & Gas category from January to July 2023.

Based on the POWR Ratings for ET across various dimensions, it's evident that Momentum, Value, and Stability are the top three noteworthy aspects with the highest ratings. 

Momentum has consistently achieved high scores over the examined period. Starting from a very high rating of 98 in January 2023, it shows a minor downward trend reaching 93 in July 2023. Despite this slight decrease, the numbers still indicate a strong momentum. 

Value also rates highly throughout, starting at 91 in January 2023 and maintaining around the 90-range through to July 2023. It goes to show that ET held its value well during this period. 

Stability, while starting from a more modest rating of 53 in January 2023, displays a clear upward trend, gaining strength over the months to reach a significantly higher rating of 72 by July 2023.

This suggests continuous improvement in stability, demonstrating ET’s potential resilience against market fluctuations. In summary, these POWR Ratings indicate that ET is demonstrating strong momentum, holding its value, and showing increased stability.

However, investment decisions should always consider factors such as company fundamentals, market dynamics, and risk tolerance.

How does Energy Transfer LP (ET) Stack Up Against its Peers?

Other stocks in the Energy - Oil & Gas sector that may be worth considering are Cheniere Energy, Inc. (LNG), Weatherford International plc (WFRD), and Valero Energy Corporation (VLO) - they are rated A (Strong Buy) or B (Buy) in our proprietary rating system.

What To Do Next?

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3 Stocks to DOUBLE This Year >

ET shares were trading at $12.74 per share on Thursday afternoon, down $0.10 (-0.78%). Year-to-date, ET has gained 12.60%, versus a 15.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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