6 Aug

Energy Transfer’s Earnings: What to Expect in Q2

WRITTEN BY Vineet Kulkarni

Energy Transfer (ET) is expected to release its second-quarter earnings on Wednesday after the markets close. According to consensus estimates, the company will report an EPS $0.35 for the quarter ending June 30. The estimate represents earnings growth of approximately 13% compared to the second quarter of 2018. In the first quarter, Energy Transfer posted an EPS of $0.34. Energy Transfer showed significant earnings growth in the last few quarters due to volume growth and growth projects coming online.

Energy Transfer’s Earnings: What to Expect in Q2

Earnings drivers

Based on the consensus estimates, Energy Transfer will report total revenues of $14.0 billion in the second quarter. The estimate represents flattish top-line growth compared to the second quarter of 2018. The Crude Oil Transportation and Services segment has been Energy Transfer’s main growth driver in the last few quarters. The segment has gained from increased transported volumes mainly through Texas pipelines and the Bakken pipeline. There will be an update on the expansion of the Bakken Pipeline during the second-quarter earnings. Investors will likely watch the update closely.

Energy Transfer appears to be betting big on its NGL and Refined Products segment. Among $5.0 billion capital allocated for growth projects this year, the company plans to spend approximately 60% on the NGL and Refined products segment. The segment includes the Mariner East pipeline system, which carries natural gas liquids from the Marcellus and Utica Shale regions to Pennsylvania and beyond. The Mariner East 2 pipeline started operations in December last year, which will likely boost Energy Transfer’s top line in the second quarter.

Last month, Bloomberg reported that Energy Transfer might sell its 33% stake in the Rover pipeline for approximately $2.5 billion. The pipeline transports natural gas from the Appalachian region to the Midwest.

Energy Transfer’s management has given an adjusted EBITDA guidance range of $10.6 billion–$10.8 billion for 2019. The company expects annual long-term distribution coverage around 1.7x–1.9x.

Energy Transfer stock looks weak

Energy Transfer stock has been weak despite its strong earnings growth this year. The stock was particularly weak due to weakness in energy commodities. The stock has lost more than 10% in the last two weeks. Currently, Energy Transfer stock is trading at record oversold levels with its RSI (relative strength index) at 9. Energy Transfer stock is trading 8% and 9% below its 50-day and 200-day simple moving average levels, respectively, which indicates weakness.

According to analysts’ estimates, Energy Transfer stock has a mean target price of $21.0, which implies an estimated upside of more than 58% for the next 12 months. The stock closed at $13.3 on Monday. Analysts continue to look positive on Energy Transfer stock. Among the 20 analysts tracking Energy Transfer, two recommended a “hold,” ten recommended a “strong buy,” and eight recommended a “buy.” None of the analysts recommended a “sell” as of Tuesday.

Apart from a steep capital gain, Energy Transfer’s healthy distribution yield of 8.8% offers a handsome total return potential. In comparison, the Alerian MLP ETF (AMLP) yields 8.4%. AMLP has risen 7% YTD. The ETF traded largely sideways after a steep rise early this year.

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