Energy Transfer: Highlights from Its Q3 Earnings


Nov. 7 2019, Published 8:13 a.m. ET

Midstream infrastructure giant Energy Transfer (ET) reported its third-quarter earnings on Wednesday after markets closed. The company reported an adjusted EBITDA of $2.79 billion for the quarter—an increase of 8% YoY. While the EBITDA growth seems to have eased slightly, the company’s distribution metrics remained strong in the third quarter. The company’s distributable cash flow increased 10% YoY to $1.52 billion in the third quarter. At the end of the quarter, Energy Transfer’s distribution coverage ratio was 1.88x. During the second quarter, the company’s distributable cash flow grew 23% YoY.

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Energy Transfer’s Q3 earnings

Energy Transfer reported total revenues of $13.5 billion, which missed the consensus estimates for the third quarter. In the same quarter last year, the company posted revenues of $14.5 billion. The declining revenue growth might concern investors. In 2018, Energy Transfer’s revenues increased 35% YoY. However, the company’s revenue growth is estimated to fall to 5% YoY in 2019.

In the third quarter, Energy Transfer’s crude oil transportation segment reported an adjusted EBITDA of $700 million—an increase of just 2.6% YoY.

The NGL and refined products segment’s adjusted EBITDA grew 33% YoY to $667 million in the third quarter. NGL transportation increased largely due to higher production in the Permian and North Texas regions as the Mariner East 2 pipeline came into service. Recently, the company continued to put growth projects into service. The Permian Express 4 expansion project started operating last month. Energy Transfer’s large debt is a concern for investors. The debt was over $53 billion at the end of the third quarter.

Kinder Morgan (KMI) reported its third-quarter earnings last month. The company’s distributable cash flow increased 4% YoY in the third quarter. To learn more, read Kinder Morgan: Q3 Earnings Had Mixed Results.

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Although Energy Transfer reported solid earnings in the last several quarters, the stock continued to trade subdued. The company’s third-quarter earnings might not boost the ailing stock. So far, the stock has fallen more than 7% this year. The stock might have fallen due to weak crude oil and natural gas prices this year. Energy Transfer stock and crude oil prices had a correlation coefficient of 0.3 this year.

Solid yield

Energy Transfer has improved its distribution metrics, which might please investors. However, many investors will be waiting for a distribution increase. The company has been paying flat distributions for the last several quarters. Recently, the company declared a distribution of $0.305 per unit, which took its total distribution to $1.22 per unit for 2019. Energy Transfer’s distribution yield is close to 9%—notably higher than many of its peers. In comparison, the ALPS Alerian MLP ETF (AMLP) yields 9%.

Currently, analysts mainly look positive on Energy Transfer stock. Among the analysts tracking the company, 50% recommend a “strong buy,” 40% recommend a “buy,” and the rest of the analysts recommend a “hold.” None of the analysts recommend a “sell” as of today. The analysts have given a target price of $20.79, which offers a potential upside of almost 70% for the next 12 months.

Energy Transfer stock looks attractive due to its tall distribution yield. Notably, MLPs have some attractive options from the dividend perspective amid market uncertainty. To learn more, read 5 Dividend Stocks for an Uncertain Market.


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