Potential Future Direction of Energy Transfer Corporation's Stock Over the Next Five Years
Energy Transfer: A Resilient Midstream Giant Poised for Growth
In the ever-evolving energy landscape, one name stands out - Energy Transfer (ET). The Dallas-based midstream company, operating over 135,000 miles of pipeline across 44 states, has been a significant player in the industry.
Over the past five years, Energy Transfer's stock has rallied 155%, delivering a total return of 293% when including its reinvested distributions. This impressive growth can be attributed to a variety of factors, including strategic expansions and acquisitions that have added more than 45,000 miles to its pipeline network.
Analysts expect Energy Transfer's adjusted EBITDA to continue its growth trajectory, with a compound annual growth rate (CAGR) of 7% from 2019 to 2024. As the macro environment stabilizes, this growth rate is expected to accelerate further, reaching a CAGR of around 8% from 2024 to 2027.
Energy Transfer's current forward annual dividend stands at $1.31, translating to a forward yield of 7.2%. As a master limited partnership (MLP), Energy Transfer aims to pay out most of its profits as distributions to its investors. Notably, its annualized distributable cash flow (DCF) has easily covered its total distributions over the past six years.
The Trump administration's focus on boosting domestic energy production and relaxing regulations on pipeline operators could generate additional tailwinds for Energy Transfer. The secular growth of the LNG export market, potential completion of the Lake Charles LNG project, tighter integration of Crestwood and WTG acquisitions, and ongoing expansion in the Permian Basin should drive Energy Transfer's adjusted EBITDA and DCF growth.
However, Energy Transfer's business operations are well-insulated from volatile commodity prices, operating under a "toll road" business model, charging upstream and downstream companies to use its infrastructure. This model provides a stable revenue stream, even in challenging market conditions.
Despite the challenges posed by the pandemic in 2020, Energy Transfer bounced back, recovering and expanding out of the downturn by acquiring peers. In the coming years, Energy Transfer plans significant pipeline expansion projects, focusing on extending its existing natural gas infrastructure and investing in renewable energy-related transport, including increasing hydrogen pipeline connectivity to the hydrogen core network.
Looking ahead, if Energy Transfer grows its adjusted EBITDA at a CAGR of 5% from 2027 to 2031 and trades at 7.5 times its forward adjusted EBITDA, its enterprise value could grow about 11% to $141 billion by 2030.
While Energy Transfer might not consistently beat the S&P 500 on its own over the next five years, if it continues to grow its profits and raise its distributions, it could still deliver a higher total return than the S&P 500. However, higher tariffs on steel and other raw materials could drive up Energy Transfer's construction costs, potentially impacting its profitability.
In conclusion, Energy Transfer, with its robust pipeline network, strategic expansion plans, and resilient business model, is well-positioned to capitalize on the opportunities in the energy market. Its focus on renewable energy-related transport and increasing hydrogen pipeline connectivity underscores its commitment to a sustainable future. As always, investors are advised to conduct their own due diligence before making investment decisions.
