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Stock Analyst Update

Energy Transfer Reports Strong Q2 Earnings

Fair value estimate on stock, no-moat rating both remain unchanged.


Energy Transfer’s (ET) second-quarter results were strong, as expected. The partnership boosted 2022 EBITDA guidance to a midpoint of $12.7 billion from $12.4 billion last quarter, mainly in our view due to strong marketing profits which benefit from volatility and wide spreads.

More so than any other U.S. and Canadian midstream entity we cover, Energy Transfer leans into profiting from volatility in the energy market, so this is an ideal environment. Management confirmed this by stating on the conference call that the revised guidance could be exceeded if oil and gas prices and spreads remain strong for the rest of the year. As our 2022 EBITDA forecast already stood at $12.7 billion, we do not expect any material changes to our forecast, leaving our fair value estimate unchanged. Our no-moat rating also remains unchanged.

Energy Transfer’s investment of its cash windfall this year is still mixed, in our view. On the one hand, it increased its distribution again to $0.23 per unit, $0.92 annualized, up more than 50% from last year, and it appears to be on pace to achieve its $0.305 per unit, or $1.22 annualized, by the end of the year or early 2023. This large investment in the distribution ignores its deeply undervalued stock, representing substantial lost unitholder value. We also remain skeptical of seeking organic or M&A opportunities within petrochemicals, especially in this strong environment.

On the other hand, pursuing a final investment decision on Lake Charles LNG, the potential expansion of the recently acquired Gulf Run to 2.6 billion cubic feet per day from 1.65 billion cubic feet per day purely via compression, and the Warrior pipeline adding gas takeaway capacity to the Permian all look to be very attractive investments.

Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.