ET Stock Outperforms its Industry in 3 Months: Time to Buy or Hold?

Energy Transfer LP (ET) units have outperformed peers, rising 1.5% in three months, supported by its extensive 140,000-mile pipeline network and approximately 90% fee-based earnings that shield against commodity volatility. The company is pursuing strategic acquisitions and plans $5 billion in 2025 capital expenditures to expand operations, with analysts projecting over 10% earnings per unit growth for 2025 and 2026. Despite trading at a discount with a 10.15x EV/EBITDA compared to the industry average of 11.5x, ET's 11.47% return on equity trails the industry's 13.95%, leading to a 'Hold' recommendation for existing investors while suggesting new investors await a better entry point.

Analysis

Energy Transfer LP (ET) has demonstrated relative strength, with its units gaining 1.5% over the past three months, outpacing the industry's 0.2% growth. This performance is underpinned by a robust business model featuring a vast 140,000-mile pipeline network and earnings that are approximately 90% fee-based, providing significant insulation from commodity price volatility. The company's growth strategy is aggressive, involving strategic acquisitions in key basins like the Permian and a planned capital expenditure of $5 billion for 2025 to enhance its infrastructure. This is supported by a positive earnings outlook, with consensus estimates projecting over 10% year-over-year growth for both 2025 and 2026. From a valuation standpoint, ET appears inexpensive, trading at an EV/EBITDA multiple of 10.15x, below the industry average of 11.5x. However, a key point of concern is the company's profitability; its trailing 12-month return on equity (ROE) of 11.47% is notably lower than the 13.95% industry average, suggesting less efficient use of shareholder capital compared to peers.

Key Decisions for Investors

• Given the combination of stable fee-based cash flows and consistent distributions, current holders may consider maintaining their positions, but should monitor the high 98% payout ratio for sustainability.
• Potential new investors should weigh the attractive valuation and strong growth projects against the subpar return on equity; it may be prudent to wait for signs of improving profitability metrics before initiating a position.
• Investors should monitor the execution of the $5 billion capital expenditure plan and the integration of recent acquisitions, as their success is critical to justifying the growth narrative and potentially closing the valuation gap with peers.