Energy Transfer (ET) stock rose more than 4% on September 9 after Italy’s Snam reportedly showed interest in its Rover pipeline stake. Energy Transfer stock is up just 5% so far this year, which is in line with the Alps Alerian MLP ETF (AMLP).
Pipeline stake sale
According to a September 6 report by Reuters, Snam—Europe’s largest gas pipeline operator—is working on a bid to buy a 33% stake in Energy Transfer’s Rover pipeline.
The pipeline carries natural gas from Ohio, West Virginia, and Pennsylvania through the Midwest. Its pipeline also goes through Michigan and intro Canada. The pipeline has the capacity to carry 3.25 billion cubic feet of gas per day from the Marcellus and Utica Shale in Appalachia. The pipeline entered service in Q4 2018.
Bloomberg reported a probable sale of Energy Transfer’s Rover pipeline stake in July. The sale is expected to garner around $2.5 billion for the energy infrastructure company.
The proceedings of the stake sale in assets such as the Rover pipeline, if goes through, could be used for debt repayments. Energy Transfer’s massive debt is a significant concern for its investors. At the end of Q2 2019, the company’s net debt reached $46.0 billion.
Energy Transfer’s debt has increased substantially in the last few years. Its management is aiming to reduce its leverage ratio to 4.0x–4.5x from its current leverage ratio of about 5.0x.
Energy Transfer asked FERC for a five-year extension for its Lake Charles LNG export terminal to adjust complex international negotiations. To learn more, please read Energy Transfer Seeks Lake Charles Terminal Extension.
Energy Transfer stock: Moving averages
Energy Transfer stock closed at $13.90 on September 9. The stock is trading marginally below its 50-day moving average and 4% below its 200-day moving average. Once it crosses above $14.10 and $14.50, its respective 50-day and 200-day levels, the bullish trend might set in Energy Transfer stock.
On the downside, the stock could see support at around $12.0—its multi-month low in December 2018.
In comparison, the Alps Alerian MLP ETF (AMLP) has traded under pressure recently. AMLP trading 4% and 6% below its 50-day and 200-day moving average levels, respectively.
The weakness in AMLP is underscored by the fair discount to both its moving average levels. Also, AMLP’s 50-day level crossed below its 200-day level in August, which indicates a bearish signal. Technical analysts call this the “death cross.”
Energy Transfer’s earnings have shown consistent growth in the last few quarters. In the first half of 2019, its earnings increased by more than 50% compared to the first half of 2018. However, that trend could not boost Energy Transfer stock primarily due to the depressed oil and gas prices.
Importantly, the company’s management has given an EBITDA guidance range of $10.8 billion–$11.0 billion for 2019, which indicates an increase of more than 30% year-over-year.
Energy Transfer stock: Price targets
Energy Transfer stock offers a substantial total return potential with its handsome capital gains and a robust yield. Analysts gave it a price target of $21.20 compared to its current market price of $13.90. This implies an estimated upside of 52% for the next 12 months.
Energy Transfer offers a distribution yield of 9%, higher than many of its peers. Of the 20 analysts tracking ET stock, eight recommended a “buy,” 10 recommended a “strong buy,” and two recommended a “hold.” Wall Street analysts have been positive on Energy Transfer stock and have not recommended it as a “sell” for over a year.