ETE Is Outperforming WMB Year-to-Date: Will the Trend Continue?



ETE is outperforming WMB year-to-date

The entire midstream energy sector, including Energy Transfer Equity (ETE) and Williams Companies (WMB), has bounced back significantly from its March lows.

Overall, ETE has risen 0.9% since the start of this year, while WMB has fallen 9.4% YTD. At the same time, the Alerian MLP ETF (AMLP), which is made up of 25 energy MLPs, has fallen 3.9%. WMB is underperforming ETE and AMLP by 1,030 basis points and 550 basis points, respectively.

WMB’s YTD underperformance relative to ETE’s and AMLP’s can be attributed to Williams Partners’ (WPZ) weak earnings growth, uncertainties related to the impact of the revised FERC (Federal Energy Regulatory Commission) income tax ruling, and weaker-than-expected drilling activity in the US Northeast region. We’ll look more into this in the next article.

Will the trend continue?

High leverage at Energy Transfer Equity, flat distribution growth at Energy Transfer Partners (ETP) due to a high cost of equity, volatility in crude oil prices, and project delays could weigh on Energy Transfer Equity’s stock performance for the rest of 2018. On the other hand, a favorable simplification transaction could be a big positive for ETE going forward.

A simplification transaction, a strong natural gas demand outlook, recovery in drilling activity in the Northeast and Haynesville regions, low commodity price exposure, and demand-focused expansion opportunities are boosting Williams Companies’ stock performance.

Williams Companies could outperform Energy Transfer Equity and AMLP going forward. In the next article, we’ll look into the shale exposures of ETE and WMB.

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