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Why Are Institutional Investors so Bullish on Energy Transfer Equity?

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Recent institution activity in ETE

The number of institutional holders in Energy Transfer Equity (ETE) decreased to 406 by the end of 3Q17, compared with 407 in the previous quarter. However, the percentage of shares held by institutional investors rose to 51.85% from 48.71% during the same period.

ING Bank and Bank of America Merrill Lynch (US) added major positions in ETE in 3Q17, buying 10.92 million and 10.15 million shares, respectively. Balyasny Asset Management and Morgan Stanley Investment Management (US) were the biggest sellers, with 6.51 million and 4.04 million shares sold.

Among the top institutional holders, 7.8 million total positions in ETE were added. This indicates a bullish sentiment toward ETE, which could be attributed to strong expected distributable cash flow growth. The MLP (master limited partnership) GP (general partner) is expected to benefit from distribution growth at Energy Transfer Partners (ETP), the expiration of IDR (incentive distribution right) subsidies, and equity issuance at ETP.

Top five holders

Bank of America Merrill Lynch (US), Harvest Fund Advisors, Morgan Stanley Investment Management, Tortoise Capital Advisors, and Neuberger Berman are the top five institutional holders in ETE. Bank of America Merrill Lynch became the largest institutional holder in ETE, with an addition of ~10.2 million positions in 3Q17, and now holds ~4.5% in the partnership.

Analyst recommendations

As of November 14, 70.6% of analysts surveyed by Reuters recommend a “buy” for ETE stock, while the remaining 29.4% recommend a “hold.” Goldman Sachs last upgraded ETE to “buy.”

Overall, the partnership has seen six rating updates in 2017, including four upgrades, one downgrade, and one new coverage. Peers Williams Companies (WMB) and Plains GP Holdings (PAGP) have “hold” recommendations from 73.7% and 61.9% of analysts, respectively. ETE is trading below the low range ($17.0) of the analysts’ consensus target price. ETE’s average target price of $20.6 implies a ~25% upside potential from its current price level.

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