Energy Transfer, the pipeline company, has released its second-quarter results, showcasing strong operational momentum and prompting an increase in its full-year guidance. The company’s stock has already seen a solid performance this year, with a return of over 20%, including distributions. Despite this, Energy Transfer continues to offer an enticing forward distribution yield of approximately 7.9% and trades at an attractive valuation.
During the second quarter, Energy Transfer experienced robust volume growth across its segments. Crude oil transportation volumes surged by 22%, while crude oil terminal and NGL fractionation volumes increased by 11%. Refined product volumes also rose by 9%. As a result, the company’s adjusted EBITDA for the quarter reached $3.8 billion, marking a nearly 21% increase. Distributable cash flow (DCF) to partners, before growth capital expenditures (capex), amounted to $2 billion, up almost 32% from the previous year. Energy Transfer raised its per-share distribution by 3.2% year over year to $0.32, paying out $1.2 billion in distributions to unitholders. The distribution coverage ratio based on DCF stood at nearly 1.7 times, indicating a well-covered distribution.
Looking ahead, Energy Transfer has revised its full-year EBITDA guidance to a range of $15.3 billion to $15.5 billion, reflecting the acquisition of WTG Midstream and the outperformance of its base business. The company also increased its growth capex guidance to between $3 billion and $3.1 billion. These updated projections suggest continued growth and distribution coverage for Energy Transfer. The adjusted EBITDA forecast implies full-year DCF of approximately $9 billion, with growth capex expected to reach around $3.1 billion. The company has paid $2.3 billion in distributions thus far this year and anticipates a total payout of around $4.7 billion for the year, leaving approximately $1.2 billion in cash for debt reduction.
Energy Transfer’s stock is attractively valued, trading at a forward enterprise value (EV) -to-EBITDA multiple of just 7.3x. This valuation is lower than that of its MLP peers and even below pre-pandemic levels. The midstream industry as a whole is currently trading at a discount compared to historical averages. Moody’s recent upgrade of Energy Transfer’s senior unsecured debt further highlights the company’s strong balance sheet. Additionally, the company stands to benefit from increased natural gas demand resulting from the expansion of artificial intelligence (AI) infrastructure. Energy Transfer serves numerous gas-fired power plants and has signed deals to provide over 500,000 MMBtus per day. It is also in discussions with data centers seeking to add on-site generation capacity. With potential growth from increased natural gas demand and the possibility of multiple expansion, Energy Transfer presents an intriguing investment opportunity. Furthermore, investors can enjoy a nearly 8% yield.