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Energy Transfer Stock Offers a Huge Potential Upside

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Jan. 9 2019, Updated 7:31 a.m. ET

Entergy Transfer

Energy Transfer (ET) stock presents the highest potential upside among MLPs based on analysts’ target price for the next 12 months. Energy Transfer has a target price of $21.8—compared to its current market price of $14.5, which implies an estimated upside of 50% going forward.

Among the 18 analysts tracking Energy Transfer stock, eight recommended a “buy,” eight recommended a “strong buy,” and two recommended a “hold.” None of the analysts recommended a “sell.

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Valuation

Energy Transfer stock looks to be trading at a premium compared to its peers. The stock is trading at a forward valuation multiple of 11.0x based on its estimated earnings in 2019. Energy Transfer’s five-year historical average EV-to-EBITDA multiple is around 16x. Energy Transfer stock seems to be trading at a discounted valuation compared to its historical average. Peers’ average forward valuation is lower than Energy Transfer’s valuation.

Distribution yield

Energy Transfer is trading at a distribution yield of 8.6%. The Alerian MLP ETF (AMLP) also offers a yield of 8.6%. Investors in Energy Transfer Partners took a notable cut in the distribution after merging with Energy Transfer Equity. However, Energy Transfer’s current yield looks alluring.

Williams Companies (WMB) stock is trading at a forward EV-to-EBITDA multiple of 9.8x based on its projected earnings for 2019. Williams Companies’ historical average multiple is ~18x. The company offers a yield of 5.8%.

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