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Â© Reuters. Energy transfer: looking for dynamic investors
I’m bullish on Energy transfer (NYSE :), because its excessively cheap valuation and attractive distribution make it a very attractive place to invest right now.
Energy Transfer is a premier mid-market company involved in the pipeline transportation of propane. The company has one of the largest and most diverse energy asset portfolios in the United States.
Energy Transfer is a Master Limited Partnership (MLP) with major operations, comprising natural gas, and refined products, intermediate and interstate and intrastate transportation and storage. As one of the only mid-market companies to serve the top 15 oil and gas producing regions of the United States, Energy Transfer has achieved significant geographic diversification and scale advantages. (See Energy Transfer stock charts on TipRanks)
Energy Transfer’s asset portfolio includes irreplaceable assets and geographic diversity. Its five main segments delivered high and balanced profits for the second quarter of 2020, preventing the company from being too reliant on a single segment. In addition, Energy Transfer LP also owns Lake Charles LNG Company, 28.5 million common units of Sunoco LP (SUN) and 46.1 million common units of USA Compression Partners (NYSE :).
The company also received the GPA Midstream Environmental Excellence Award 2021, in June, for its patented natural gas compression systems that reduce the carbon footprint.
Energy Transfer reported second-quarter adjusted EBITDA of $ 2.62 billion, an increase of $ 18 million year-over-year. Distributable cash flow for the second quarter of 2021 was $ 1.39 billion, compared to $ 1.27 billion for the second quarter of 2020. This increase was largely due to higher corporate profits. LGN segments and refined, intermediate and intrastate products of the company.
Energy Transfer also completed the expansion of its LPG facilities in the Netherlands in the second quarter, increasing its capacity to export 700,000 barrels of NGL per day. Combined with the export capacity of its Marcus Hook terminal and Mariner West pipeline, Energy Transfer’s total NGL export capacity has now reached over 1.1 million barrels per day, making it one of the most important in the world.
The company also reduced its outstanding debt by approximately $ 1.5 billion, using cash generated by its $ 900 million Series H preferred unit offering as well as retained operating cash flow.
Despite its track record of underperforming its competitors due to regulatory challenges such as the Dakota Access Pipeline (DAPL), the most recent reports show promising growth and opportunities for energy transfer.
When combined with its highly diversified and balanced business portfolio as well as LGN’s record export growth, better days may be ahead. However, keep in mind that the jury is still out for DAPL, and if it ends up being shut down, shareholders should be prepared to be disappointed.
The energy transfer stock looks very cheap at the moment. Its EV / EBITDA ratio is only 7.54x which is the lowest among investment grade middlemen and its P / DCF ratio is also the lowest in the industry among investment grade midsize companies at just 3. , 10x.
The Taking of Wall Street
From Wall Street analysts, Energy Transfer gets a strong buy analyst consensus based on 4 buy ratings, 0 hold ratings and 0 sell ratings over the past 3 months. Additionally, the average energy transfer price target of $ 14.00 places the upside potential at 53.85%.
Summary and conclusions
Energy transfer is very inexpensive by virtually all parameters. In addition, its operating results and balance sheet have seen a strong recovery in the first half of 2021 and point to an optimistic future for the company and investors.
That said, the company has a checkered past with repeated instances of mismanagement destroying investor value. Therefore, while it may seem like the right time to invest here, investors should be careful about the exposure they get to the stock.
Disclosure: As of the date of publication, Samuel Smith had a long position in Energy Transfer.
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