8 Aug

Energy Transfer Earnings: Growth Streak Continued

WRITTEN BY Vineet Kulkarni

Energy Transfer (ET) continued its earnings growth streak in the second quarter. The company reported an adjusted EBITDA of $2.8 billion, which missed the consensus estimates for the quarter. The adjusted EBITDA rose 25% compared to the same quarter last year. Energy Transfer increased its adjusted EBITDA guidance range to approximately $10.8 billion–$11.0 billion for 2019. Previously, the range was $10.6 billion–$10.8 billion.

Energy Transfer Earnings: Growth Streak Continued

Energy Transfer’s earnings

Most of Energy Transfer’s segments achieved significant growth in the second quarter. Apart from higher earnings, increased guidance for the year might boost the stock in the short term. The company’s distribution metrics also continued to improve. The distributable cash flow attributable to partners grew to $1.6 billion in the second quarter—an increase of 23% YoY (year-over-year). The company’s distribution coverage ratio was 2.0x in the second quarter.

Energy Transfer reported total revenues of $13.9 billion for the quarter ending June 30—a fall of almost 2% compared to the same quarter last year. Energy Transfer’s Crude Oil Transportation and NGL and Refined Products segments had strong growth in the second quarter. Their adjusted EBITDA increased 40% YoY each in the second quarter. The Crude Oil Transportation segment benefited due to higher volumes through the Bakken and Texas pipelines.

What to expect moving forward

Energy Transfer wants to reduce its leverage profile. At the end of the second quarter, the company’s net debt-to-EBITDA ratio was 4.8x—much lower than 6.2x in the second quarter of 2018. The net debt-to-EBITDA ratio shows how many years it would take a company to repay its debt using the EBITDA if both are kept constant.

Energy Transfer announced its eighth fractionation facility at Mont Belvieu, Texas. The company has a total fractionation capacity of over one million barrels per day. The facility will be in service by the second quarter of 2021. The company opened an office in Beijing, China, in April to explore opportunities in liquified natural gas and NGL exports. According to Bloomberg, Energy Transfer is considering a stake sale in its natural gas Rover Pipeline for approximately $2.5 billion.

Stock might see a reversal

Energy Transfer stock hasn’t pleased investors this year due to weakness in energy commodities. So far, the stock has risen 1% this year. Energy Transfer has significantly underperformed its peers. Kinder Morgan (KMI) stock has risen 30%, while Enterprise Products Partners (EPD) has risen 15% during the same period.

Energy Transfer stock continues to trade in the oversold level with its relative strength index at 20. The level indicates an imminent reversal in the stock’s direction. From a valuation standpoint, Energy Transfer stock looks attractive. Currently, the stock is trading at 10x its forward earnings, which is way lower than its peers. Kinder Morgan is trading at 19x, while Enterprise Products Partners is trading at 13x its respective forward earnings.

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