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ETE Is Up ~12% in April: Can the Momentum Continue?

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Apr. 24 2018, Published 10:43 a.m. ET

Energy Transfer Equity’s recent performance

Energy Transfer Equity (ETE), the MLP GP (general partner) of Energy Transfer Partners (ETP), has risen ~12.0% month-to-date, supported by strong gains in crude oil prices and a general recovery in the midstream energy sector. The Alerian MLP ETF (AMLP) has gained 6.9% during the same timeframe.

Despite this recent outperformance, ETE is underperforming the Alerian MLP ETF YTD (year-to-date) and the energy sector in general. ETE has lost 8.0% since the start of this year while AMLP is down 7.1%. The Energy Select Sector SPDR ETF (XLE) is up 1.4% YTD.

ETE’s underperformance could be attributed to the pipeline shutdown and project delays at Energy Transfer Partners. Operations at ETP’s Mariner East 1 pipeline were halted after the discovery of sinkholes near the project site.

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Impact of preference offering at ETP

Energy Transfer Partners recently announced the issuance of 18.0 million “7.375% Series C fixed-to-floating rate cumulative redeemable perpetual preferred units.” The partnership expects to raise $450.0 million from the transaction. The proceeds from the preferred issuance are expected to be used for debt repayment.

Distributions on cumulative preference shares accrue in the case of nonpayment during a particular period, and they have preference over non-cumulative preference and common shares once a company resumes distribution. The recent offering is expected to impact ETP’s distribution coverage and could weigh on the partnership’s distribution growth targets for 2018. ETE is dependent on its subsidiaries for distribution income.

Series overview

In this series, we’ll discover whether ETE can continue this upward momentum from here. We’ll look into GP’s technical indicators and price forecast. Following this, we’ll look into ETE’s valuations and analyst recommendations.

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