3 Reasons Why Energy Transfer Is One of My Largest Positions

Energy Transfer is positioned for midstream growth, planning up to $5.9 billion of growth capital spending this year on projects with long-term commitments and EBITDA build multiples of 5x-6x. The MLP trades at a forward EV/EBITDA multiple of 8.3, described as the lowest among large pipeline MLPs, while offering a 6.7% distribution yield targeted to grow 3%-5% annually. Its distribution coverage was 2.2x last quarter, supported by a fee-based EBITDA mix of roughly 90% and take-or-pay contracts.

Analysis

ET's discount is unlikely to close merely because its project backlog converts: the market continues to price a governance/complexity premium, MLP investor-base constraints, and a history of acquisition-led capital allocation. The relevant underwriting question is whether incremental projects earn returns above ET's all-in cost of capital after financing and maintenance needs, not whether announced build multiples look attractive. A sustained leverage decline alongside self-funded growth would be the credible rerating catalyst; a renewed equity issuance or large acquisition would reinforce the discount.

The data-center gas-demand narrative is more directly monetizable for WMB, whose pipeline footprint is closer to the Northeast/Southeast power-load buildout, than for ET's Permian-centered system. ET benefits principally if rising associated-gas volumes and LNG-linked demand tighten Permian takeaway utilization; that is a 6-18 month volume and contract-renewal story, not an immediate AI revenue catalyst. EPD is the cleaner defensive alternative if the market shifts toward valuing balance-sheet quality and capital-return durability over growth optionality.

Near term, ET's high cash yield can limit downside in a range-bound energy tape, but it does not insulate units from a broader risk-off move or weakening producer activity. The key falsifiers over the next two earnings cycles are lower-than-expected project completion/contracting, distributable-cash-flow coverage deterioration, or net-debt-to-EBITDA moving higher while growth capital remains elevated. Conversely, evidence that growth capital is funded internally without slowing distribution growth could drive a 1-2 turn EV/EBITDA narrowing versus EPD/WMB over 12 months.

Key Decisions for Investors

• Initiate a 6-12 month long ET / short EPD relative-value position only if ET's EV/EBITDA discount to EPD remains wider than its own 3-year median after adjusting for leverage. Target a partial closing of the valuation gap; stop if ET reports rising leverage or materially lower DCF coverage.
• For a purer power-demand and data-center gas thesis, favor long WMB over ET for 6-18 months. Reassess after WMB's next contract/backlog update; the thesis fails if incremental contracted transmission demand does not translate into EBITDA guidance or if permitting delays defer growth beyond 2028.
• Treat ET as an income-plus-rerating position rather than an AI proxy: scale entry around earnings only after confirming growth capex, funding sources, and net leverage. Do not chase a yield-driven rally absent evidence of self-funded capital spending and unchanged distribution coverage.
• Maintain an alert on Permian producer activity, regional gas basis differentials, and LNG export utilization. A sustained deterioration in any of these indicators would weaken ET's utilization upside and warrants reducing relative exposure before formal guidance cuts.