TipRanks Smart Value #68: Fueling Returns
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Dear Investors,
Dear Investors,
Welcome to the 68th edition of the TipRanks Smart Value Newsletter.
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This Week’s Top Value Pick: Energy Transfer (ET)
Energy Transfer (ET) sits at the core of the U.S. energy infrastructure system, providing the critical networks and services that move energy from production regions to domestic and international markets. Its assets support the transportation, storage, and export of natural gas, crude oil, and natural gas liquids, enabling the continuous flow of energy that underpins industrial activity, power generation, and global trade. The partnership serves a broad customer base that includes energy producers, refiners, utilities, exporters, and industrial users. As U.S. energy production and exports continue to grow, Energy Transfer plays an increasingly important role in moving, balancing, and monetizing hydrocarbons across North America and beyond.
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Lone Star State
Energy Transfer’s story began in 1996 as a regional natural gas pipeline operator serving Texas. Over the following three decades, the company evolved into one of the largest and most diversified midstream energy operators in North America through a combination of strategic acquisitions, infrastructure investments, and network expansion. From the outset, management pursued a vision of building a fully integrated energy logistics system connecting major production regions, including the Permian, Eagle Ford, Marcellus, and Haynesville basins, with domestic and international demand centers. This strategy gradually expanded the company’s presence across natural gas, natural gas liquids (NGLs), crude oil, refined products, storage, processing, fractionation1, and export infrastructure.
Acquisitions played a central role in building this platform. In 2015, Energy Transfer completed its acquisition of Regency Energy Partners, significantly expanding its natural gas gathering and processing business. The company then undertook a major corporate simplification between 2017 and 2018. Energy Transfer Partners merged with Sunoco Logistics Partners in 2017, adding substantial crude oil, refined products, and NGL infrastructure. That same year, the company transferred its remaining ownership interests in Sunoco’s retail convenience store business to Sunoco LP, allowing management to focus more squarely on midstream infrastructure. In 2018, Energy Transfer Equity and Energy Transfer Partners merged, creating a single publicly traded entity under the Energy Transfer LP name and ticker symbol ET. The transaction eliminated incentive distribution rights (IDRs), lowered the company’s cost of capital, and increased financial flexibility.
Subsequent acquisitions further expanded the company’s scale and geographic reach. The acquisition of SemGroup in 2019 strengthened its crude oil and NGL infrastructure, while the purchase of Enable Midstream in 2021 expanded its footprint in key production regions. In 2023, Energy Transfer acquired Crestwood Equity Partners, deepening its position in gathering, processing, and transportation. The following year, it acquired WTG Midstream, adding approximately 6,000 miles of gas gathering pipelines, eight processing plants, and additional facilities under development in the Midland Basin.
Energy Transfer has also continued to expand through partnerships and international opportunities. In 2024, Energy Transfer and Sunoco formed the ET-S Permian joint venture, combining crude oil and produced-water gathering assets2 across the Permian Basin. The venture operates more than 5,000 miles of pipelines and over 11 million barrels of crude oil storage capacity, with Energy Transfer owning a 67.5% stake. In 2025, Sunoco acquired Germany-based TanQuid, adding 16 fuel terminals across Germany and Poland. Later that year, Sunoco agreed to acquire Parkland Corp., a transaction expected to create the largest independent fuel distributor in the Americas and enhance cash flow generation.
Alongside these acquisitions, Energy Transfer has periodically streamlined its portfolio. More recently, Energy Transfer suspended development of its long-planned Lake Charles LNG export project, choosing instead to allocate capital toward a large backlog of natural gas infrastructure projects that management believes offer more attractive risk-adjusted returns.
Combined with ongoing investments in gathering systems, processing facilities, export infrastructure, and pipeline expansions, these moves have transformed Energy Transfer into one of North America’s most diversified midstream energy companies, with a broad asset base designed to support stable cash flows and long-term earnings growth.
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1 – Fractionation is the process of separating natural gas liquids (NGLs), such as ethane, propane, butane, isobutane, and natural gasoline, into their individual components.
2 – Water gathering assets for midstream oil companies are infrastructure systems designed to collect, transport, and manage produced water, the water that is brought to the surface during oil and gas extraction, particularly in regions like the Permian Basin.
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Flow State
Energy Transfer generates revenue by gathering, processing, transporting, storing, and exporting natural gas, natural gas liquids (NGLs), crude oil, and refined products through an extensive portfolio of pipelines, terminals, storage facilities, processing plants, and export infrastructure. Unlike upstream energy companies that depend on commodity production, the company primarily earns fee-based revenue for the services it provides across the energy value chain. The company operates more than 130,000 miles of pipeline, along with a vast network of terminals, processing plants, and fractionation facilities spanning 44 states.
Its network connects major producing regions such as the Permian, Eagle Ford, Marcellus, and Haynesville basins with power plants, refineries, petrochemical facilities, storage hubs, and export markets. Customers pay Energy Transfer to move, process, and store energy products, creating a business model that is generally less sensitive to short-term commodity price fluctuations than that of producers. This integrated asset base allows the partnership to participate in multiple stages of the energy supply chain while benefiting from growing volumes of natural gas, NGLs, crude oil, and export activity.
The business is deliberately diversified across several segments. Its largest earnings contributor is the natural gas business, which includes intrastate and interstate pipelines that transport gas from producing regions to utilities, industrial users, LNG facilities, and power generators. The midstream segment gathers and processes raw natural gas at the wellhead, extracting valuable NGLs before the gas enters transmission systems. Energy Transfer also operates one of the largest NGL businesses in the country, transporting, fractionating, storing, and exporting products such as ethane, propane, and butane. Additional earnings come from crude oil transportation and terminals, refined products distribution through Sunoco, and compression services through USA Compression Partners, creating multiple revenue streams across the energy value chain.
What makes the business particularly durable is not just the scale of its network, but how much of the value chain it controls. In many cases, Energy Transfer handles hydrocarbons from the moment they leave the well, processes them, transports them across long-distance pipelines, and ultimately delivers them into storage facilities, industrial sites, and export terminals. This allows the company to monetize multiple services along the hydrocarbon journey, earning fees at several stages rather than relying on a single source of revenue. A substantial portion of earnings comes from fee-based contracts, reservation charges, and long-term transportation agreements that provide recurring cash flows and reduce exposure to commodity price volatility.
The system is also balanced across commodities. Approximately 40% of EBITDA is generated by natural gas infrastructure, while the remainder comes from NGLs, crude oil, refined products, compression, and related services. This diversification allows Energy Transfer to benefit from multiple demand drivers simultaneously, including domestic energy consumption, industrial activity, petrochemical demand, and growing exports.
Exports have become an increasingly important growth engine. Through strategic assets such as the Nederland export terminal in Texas and Marcus Hook in Pennsylvania, Energy Transfer helps move large volumes of U.S. energy products to international markets. These facilities are particularly important for NGL exports, which are used globally in petrochemicals and manufacturing. As countries seek reliable and secure energy supplies, Energy Transfer’s export infrastructure is becoming increasingly valuable and difficult to replicate because of permitting, regulatory, and capital barriers.
The next phase of growth is increasingly tied to end-market demand, particularly power generation. Natural gas remains a critical fuel for electricity production, and Energy Transfer is expanding its network to serve utilities, industrial customers, and rapidly growing data center developments. The company has signed long-term agreements, including projects involving Oracle, to supply natural gas that ultimately supports the electricity needs of AI and cloud computing infrastructure. These contracts can extend close to two decades, providing stable and predictable revenue streams tied to electricity demand, exports, and industrial activity rather than short-term drilling cycles.
Looking ahead, Energy Transfer’s strategy centers on expanding and optimizing its existing asset base. Management continues to invest heavily in new processing plants, pipeline expansions, fractionation facilities, and other infrastructure projects, particularly in the Permian Basin and across its natural gas and NGL businesses. Because the partnership already owns a vast network that would be extraordinarily expensive and difficult to replicate, incremental expansions, new laterals, and higher throughput can generate attractive returns with relatively modest additional investment. Combined with recent acquisitions that expand its compression and terminal operations, this positions Energy Transfer to grow earnings and cash flow alongside rising domestic energy demand, expanding exports, and the increasing power requirements of the digital economy.
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Global Reach
Several themes from management’s commentary reinforce the view that Energy Transfer’s growth outlook is increasingly supported by structural demand drivers instead of short-term commodity cycles.
One of the clearest examples is the company’s export business. Energy Transfer recently extended key ethane export contracts at its Nederland terminal through 2041, adding roughly a decade to existing agreements and securing long-term utilization for one of its most valuable export assets. While management declined to disclose whether the new contracts were signed at higher or lower rates than previous agreements, executives indicated they were satisfied with both the contract economics and the expected returns on related expansion projects.
More recently, the company announced the expansion of its Nederland natural gas liquids (NGL) export terminal to meet growing customer demand. The project will increase ethane export capacity by 240,000 barrels per day and liquefied petroleum gas (LPG) export capacity by 55,000 barrels per day. The expansion includes additional pipeline capacity between Mont Belvieu and Nederland and the construction of two new ship docks that are expected to enter service in the first half of 2027. Additional export capacity will be brought online in stages beginning in 2028. Energy Transfer has shared that the facility, together with its existing 1.3-million-barrel refrigerated ethane storage tank, will offer the largest refrigerated propane and butane storage capacity on the U.S. Gulf Coast. Following the completion of the new docks in mid-2029, Nederland’s refrigerated NGL export capacity is expected to exceed 1.25 million barrels per day.
The Northeast also represents an underappreciated growth opportunity. Energy Transfer already owns three NGL pipelines serving the Marcellus and Utica regions, while its Marcus Hook export facility retains expansion capacity. Management noted that customer contracts are being extended across the system, supporting continued demand growth through targeted expansions. Combined with the expanded 420,000-barrel-per-day capacity at Marcus Hook, Energy Transfer’s total refrigerated NGL export capacity will reach approximately 1.7 million barrels per day.
Management’s confidence in the export outlook is supported by broader market trends. The company reported record export activity across its docks and believes global demand for U.S. LNG, NGLs, crude oil, and refined products could remain elevated even after current Middle East tensions subside. Management drew parallels to the lasting shift in global energy trade following Russia’s invasion of Ukraine, arguing that many international buyers are increasingly prioritizing supply security and diversification. For Energy Transfer, rising export volumes are particularly attractive because they drive utilization across gathering systems, pipelines, fractionators, storage assets, and export terminals.
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Hyperscale Power
The company is also seeing demand emerge from several domestic growth markets simultaneously. Utilities continue to add natural gas-fired generation as coal plants retire, industrial demand remains strong along the Gulf Coast, and LNG export growth continues to support additional production and transportation requirements. Management expects approximately 800 million cubic feet per day (MMcf/d) of incremental Haynesville volumes to enter its North Louisiana system by August or September 2026, highlighting how growing LNG demand is translating into additional throughput opportunities.
Florida Gas Transmission’s Phase 9 expansion, which will add approximately 525 MMcf/d of capacity, is progressing as planned, with equipment already being ordered and no major contingencies remaining. The South Florida expansion project, which would add another 230 MMcf/d of capacity, appears highly likely to move forward, with management assigning a greater than 90% probability of reaching a final investment decision. These projects reflect growing utility demand for natural gas and are supported by long-term customer commitments.
The Hugh Brinson Pipeline is one of Energy Transfer’s most important near-term projects. The roughly 400-mile pipeline will transport up to 1.5 billion cubic feet (Bcf) of natural gas per day into fast-growing power markets in Texas. Management expects initial gas flows could begin as early as the third quarter of 2026, with Phase 1 entering service in the fourth quarter of 2026. Additional compression capacity will be added in early 2027. Because the pipeline is being built to serve growing electricity demand from industrial customers and data centers, it should provide a meaningful and relatively stable earnings contribution shortly after startup.
Management also describes the Desert Southwest Pipeline as potentially the largest pipeline ever constructed in the United States. The project is designed to transport large volumes of natural gas into Arizona and surrounding markets, where electricity demand is rising rapidly while coal generation continues to retire. The project is still in the regulatory stage, with FERC pre-filing initiated in March 2026, but Energy Transfer is targeting an in-service date in late 2029. While investors should not expect meaningful earnings contributions for several years, the sheer scale of the project highlights management’s confidence in long-term natural gas demand growth.
An increasingly important component of that demand outlook is the rapid expansion of data centers. Energy Transfer’s Nexus Hubbard project in Texas will deliver 150 million cubic feet of natural gas per day to a hyperscale data center campus, with project costs fully reimbursed by the customer. A signed letter of intent for an Arkansas data center adds another 150 MMcf/d of demand beginning in mid-2027. Management has increasingly focused on power demand as a long-term growth driver, recognizing that AI data centers require substantial amounts of reliable electricity and that natural gas remains one of the most practical ways to supply it at scale. This trend creates demand across multiple Energy Transfer business lines, including gathering systems, intrastate pipelines, interstate transportation networks, and processing assets.
In the Permian Basin, processing capacity remains the primary constraint on volume growth. However, that bottleneck should ease significantly as Mustang Draw I and Mustang Draw II enter service, adding a combined 550 MMcf/d of processing capacity by early 2027. Management also indicated that another cryogenic processing plant will likely be required by late 2026, most likely in the Delaware Basin. Importantly, Energy Transfer does not typically build new processing facilities without customer commitments, making the need for additional capacity a positive signal regarding future volume growth.
Outside the Permian, management sees few meaningful infrastructure constraints. Several regions, including the Mid-Continent, Eagle Ford, Haynesville, and Northeast, continue to have available capacity. Much of the infrastructure needed to support future growth has already been built, allowing incremental volumes to generate earnings growth without requiring proportional increases in capital spending.
One notable area where management remains disciplined is the proposed Lake Charles LNG project. While recent geopolitical tensions and concerns about Middle East energy security have generated some inbound interest from potential counterparties, executives emphasized that there are currently no meaningful commercial discussions underway. Energy Transfer continues to view Lake Charles as a potentially valuable long-term opportunity and remains open to pursuing the project if the right commercial structure and customer commitments emerge. However, management is not actively advancing the development in the absence of sufficient contractual support.
This reflects the company’s broader capital allocation philosophy of investing behind identifiable demand rather than speculative growth projects. As a result, Lake Charles should be viewed as a potential long-term upside opportunity rather than a key component of Energy Transfer’s current growth outlook.
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Structural Surge
Over the past three years, ET’s revenues and EPS have grown at a CAGR of 5.5% and 3.3%, respectively, driven by higher throughput volumes across its natural gas, crude oil, and NGL infrastructure network, supported by strong U.S. energy production and export demand. The company also benefited from acquisitions such as Crestwood, Lotus Midstream, and WTG Midstream, as well as expansion projects that increased capacity and boosted fee-based earnings. While earnings growth has been moderated by higher depreciation, interest costs, and acquisition-related impacts, rising volumes and cash flow have enabled steady long-term growth.
Energy Transfer delivered an exceptionally strong first quarter, highlighting both the earnings power of its asset base and the benefits of its diversified business model. Adjusted EBITDA increased nearly 20% year-over-year to approximately $4.94 billion, while distributable cash flow attributable to partners rose 17% to roughly $2.7 billion.
The largest contributor to quarterly growth was the NGL and Refined Products segment, where EBITDA climbed 23% year-over-year to approximately $1.2 billion. The segment benefited from record NGL fractionation volumes, record export volumes, and record Gulf Coast pipeline throughput. Newly added chilling capacity contributed roughly $50 million of incremental earnings, while record exports from the Nederland terminal helped offset weather-related disruptions experienced in the prior quarter. Earnings also received a $65 million benefit from favorable hedge settlement timing and approximately $50 million from stronger propane and butane export premiums.
Though midstream EBITDA declined 4% year-over-year to about $887 million, underlying operating trends remained positive. Volumes in the Permian Basin increased 8% as new and upgraded processing plants entered service. The reported decline largely reflected the absence of a roughly $160 million one-time revenue benefit related to Winter Storm Uri that was recognized in the prior-year period, as well as a $25 million headwind from lower natural gas and NGL prices.
Crude oil EBITDA increased 17% to approximately $869 million, supported by higher pipeline and gathering system volumes. Results also benefited from roughly $60 million of favorable crude inventory valuations, $43 million of previously reserved revenue tied to Dakota Access Pipeline contract renewals, and a $43 million litigation accrual adjustment. Intrastate natural gas EBITDA rose 27% to approximately $437 million, driven primarily by about $100 million of earnings generated through network optimization during Winter Storm Burn. Interstate natural gas EBITDA increased 1.4% to approximately $519 million as higher contracted volumes and improved transportation rates across systems such as Panhandle Eastern, Trunkline, Florida Gas Transmission, and Transwestern supported steady growth.
The company exceeded its internal expectations by roughly $500 million during the quarter. Approximately $300 million of that outperformance came from temporary factors, including weather-related optimization opportunities during Winter Storm Burn, favorable hedge settlements, inventory valuation gains, and certain legal and accounting-related items. Notably, the company achieved its entire annual optimization target in the first quarter alone. While management characterized many of these benefits as nonrecurring, it noted that similar optimization opportunities have historically occurred in roughly five out of every eight years due to the scale, flexibility, and strategic positioning of Energy Transfer’s infrastructure network.
More importantly, roughly $200 million of the outperformance reflected structural strength across the underlying business. Higher volumes moving through pipelines and processing plants, increasing utilization of recently completed projects, stronger export activity, and improved contract economics all contributed to results. For investors, this distinction is critical because these drivers tend to persist. Once a new processing plant enters service, a pipeline expansion is completed, or a long-term customer contract begins generating revenue, the associated earnings can continue for many years. Management’s guidance increase therefore appears to be driven primarily by sustainable improvements in the underlying business rather than temporary market conditions.
Debt stands at roughly $70 billion, with leverage targeted at 4.0-4.5x EBITDA and an investment-grade rating maintained in the BBB range. An annual interest expense of about $3.8 billion, combined with ongoing refinancing needs, means the company is more sensitive to interest rates and financing conditions than to commodity price swings – a key distinction for a company often viewed through an energy lens.
The strong performance prompted management to raise its full-year 2026 EBITDA guidance to $18.4 billion at the midpoint from the prior forecast of $17.65 billion, representing a $750 million increase at the midpoint. Management also indicated that results could ultimately exceed the high end of the new guidance range if commodity prices and spreads remain supportive.
Reflecting strong project activity and new contract awards, Energy Transfer increased its 2026 organic growth capital expenditure budget to $5.7 billion at the midpoint from the previous estimate of $5.3 billion. Importantly, management emphasized that these projects are being driven by identifiable customer demand rather than speculative expansion. And it’s not just potential demand, as the projects are largely backed by long-term commercial agreements serving producers, utilities, industrial customers, export markets, and data center-related power generation.
The company remains highly selective when evaluating new investments. Management stated that major growth projects are generally required to generate returns in the mid-teens and are typically supported by long-term contracts, many of which extend for 20 years or more. This approach reduces volume risk, improves cash flow visibility, and helps ensure that new capital investments contribute meaningfully to future earnings growth.
At the same time, Energy Transfer continues to prioritize opportunities that leverage its existing infrastructure footprint. Because the partnership already owns one of the largest energy transportation and processing networks in North America, many expansion projects involve adding capacity, connecting new customers, or extending existing systems rather than building entirely new networks. This often allows the company to earn attractive returns while limiting execution risk and capital intensity.
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Charged Opportunity
Over the past year, ET shares have remained largely flat despite the company’s strong operating performance. Energy Transfer’s units have continued to trade at a discount due to weaker 2025 results, uncertainty surrounding Lake Charles LNG, and a heavy growth capital spending cycle have weighed on investor sentiment. However, with most of its earnings now generated from fee-based activities, growing export demand, and a large backlog of contracted growth projects, investors appear to be gradually recognizing the company’s improving fundamentals, as reflected in its stronger performance during 2026.
Compared to its peers like Kinder Morgan, Enterprise Products Partners, ONEOK, and Williams Companies, ET is trading in the low valuation range based on non-GAAP trailing and forward P/E ratios, forward EV/EBITDA. Most notably, ET trades at only 4.8x forward cash flow, nearly half the valuation of Enterprise and ONEOK and far below Williams’ 13x multiple.
This discount would be understandable if ET were materially underperforming its peers, but the company’s operating results suggest otherwise. Revenue is expected to grow faster than several major midstream competitors, while EBITDA growth remains broadly in line with the sector. At the same time, ET generates some of the strongest operating cash flows among large-cap midstream companies, highlighting the scale and cash-generating power of its asset base.
The market appears to be valuing ET as a slower-growth, lower-quality midstream operator even though its fundamentals increasingly resemble those of higher-valued peers. Its diversified network of natural gas, NGL, crude oil, and export assets generates stable cash flows supported by long-term contracts and limited direct commodity-price exposure.
Analysts remain bullish about Energy Transfer as the company’s extensive infrastructure, including Mont Belvieu fractionation facilities, export terminals, and long-dated export contracts, provides durable demand, supports throughput growth, and strengthens its competitive position in global energy markets. In addition, management recently raised EBITDA guidance, reflecting strong operational execution, rising volumes, and optimization gains, while supporting future growth investments and its target of 3%–5% annual distribution growth.
Reflecting these strengths, Wall Street’s consensus price target implies a roughly 27% upside from current levels, while the most optimistic analyst estimates suggest potential upside of approximately 39%. The wide dispersion in analysts’ price targets reflects different assumptions about valuation re-rating, capital allocation, and investor sentiment rather than disagreement about the company’s current operations. In addition, discounted cash flow analysis indicates that the shares may be trading at roughly a 60% discount to intrinsic value, suggesting that the market may not yet fully recognize Energy Transfer’s long-term earnings and cash-flow potential.
Energy Transfer continues to demonstrate a strong commitment to rewarding unitholders through consistent and growing cash distributions. The partnership has paid distributions to common unitholders for 17 consecutive years and resumed distribution growth in 2022 following a pause caused by high leverage and the financial pressures of the COVID-19 pandemic. Since then, Energy Transfer has steadily increased its distribution, including a more than 3% year-over-year increase in Q1 2026 that raised the payout to $0.3375 per unit, or approximately $1.35 annually. At current prices, the distribution yield stands at 8.04%, well above the energy sector average of 6.47%. The company’s payout ratio of 111.7% reflects the structure of master limited partnerships (MLPs), which are designed to distribute most available cash to unitholders.
In addition to its distribution growth strategy, Energy Transfer has an authorized unit repurchase program that it can deploy opportunistically. As of March 31, 2026, roughly $880 million remained available under the authorization.
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Investing Takeaway
From a value investing perspective, Energy Transfer appears to offer an unusual combination of scale, cash-flow stability, and growth potential at a valuation that remains well below many of its midstream peers. The partnership owns one of the largest and most difficult-to-replicate energy infrastructure networks in North America, with earnings increasingly supported by fee-based contracts, export demand, utility growth, and rising power consumption from data centers. Despite strong operational performance, expanding export capacity, and a large backlog of customer-backed projects, the market continues to value ET at a discount to comparable companies. While investor concerns around leverage, capital spending, and past execution issues have weighed on sentiment, the company’s growing cash flows, improving fundamentals, and disciplined approach to growth suggest the gap between its market valuation and intrinsic value may not be justified. For long-term value investors, ET offers exposure to durable infrastructure assets at an attractive entry point.
