Recently, Energy Transfer (ET) stock continued to trade under pressure. The stock fell almost 4% on Monday. The recent weakness wiped out all of the company’s gains following record earnings last week.
Energy Transfer stock updates
The stock is trading at $13.4, which is almost 7% and 9% below its 50-day and 200-day simple moving average levels, respectively. The large discount to both of these levels suggests major weakness in the stock. Energy Transfer stock briefly crossed above both of these key levels in July. However, the stock couldn’t maintain the gains. The stock is trading close to oversold levels.
Energy Transfer’s correlation with crude oil
Energy Transfer’s earnings growth streak continued in the second quarter. The company’s net income grew by an average of 90% in the last seven quarters. However, the growth didn’t boost the stock. Energy Transfer stock has lost more than 26% in the last 12 months. Weakness in crude oil prices continued to drive the stock lower. Despite little or no direct exposure to oil prices, Energy Transfer stock had a moderate correlation of around 0.40 with crude oil this year.
The short interest in Energy Transfer stock increased 8% on July 31. The total shorted shares in the company were 97.1 million on July 15. The total shorted shares grew to 105.2 million on July 31. Usually, short interest indicates investors’ anxiety. Higher short interest means that more investors expect the stock to fall from its current levels.
Many analysts changed Energy Transfer’s target price after its second-quarter earnings. Citigroup raised its target price from $19.5 to $20.0 on Monday. UBS also raised its target price to $27.0 from $26.0 on August 9. In contrast, Stifel cut its target price from $22.0 to $20.0 last week.
Based on analysts’ estimates, Energy Transfer stock has a mean target price of $21.1 for the next 12 months. The target price indicates a potential upside of almost 58% compared to its current market price of $13.4. With the steep fall, Energy Transfer’s distribution yield rose recently. The company offers a yield of 9%, which is notably higher than its five-year average. Energy Transfer presents a solid total return potential given its handsome capital gain and superior distribution yield.
AMLP at record oversold levels
In comparison, the ALPS Alerian MLP ETF (AMLP) is trading at a distribution yield of 8.5%. AMLP declared a quarterly distribution of $0.19 per unit last week, which represents a decrease of 2.6% compared to its previous quarterly distribution. Weakness in energy commodity prices weighed on AMLP as well. AMLP is trading at record oversold levels, which suggests an impending reversal. The ETF’s 14-day RSI (relative strength index) was close to 6 on Monday. AMLP touched similar RSI levels in August 2017. Energy Transfer stock forms almost 10% in AMLP.
To learn more, read Analyzing the Top 5 MLPs That Analysts Recommend.