ET Stock Outperforms Its Industry in a Year: How to Play?

Energy Transfer LP (ET) has significantly outperformed its sector, rallying 7.9% over the past year, driven by its extensive 140,000-mile fee-based midstream network that ensures stable cash flows from growing U.S. oil, gas, and NGL production and export demand. The company is strategically expanding through acquisitions and substantial capital investments, leading to projected EPS growth of 8.59% and 10.91% for 2025 and 2026, respectively. While ET trades at an attractive EV/EBITDA discount (9.29x vs. 10.65x industry average) and offers consistent distributions, its lower return on equity (11.08% vs. 13.65% industry average) results in a Zacks "Hold" rating, suggesting investors might await a more optimal entry point despite its strong operational positioning.

Analysis

Energy Transfer LP (ET) has demonstrated significant market outperformance, with its units rallying 7.9% over the past year in contrast to a 0.8% decline in its industry peer group and a 1.9% loss for competitor Plains All American Pipeline (PAA). This positive momentum is supported by a bullish technical signal, as the stock is trading above its 50-day simple moving average. Fundamentally, the company's stability is anchored by a business model where approximately 90% of revenues derive from long-term, fee-based contracts, insulating cash flows from commodity price volatility. Growth is being driven by strategic acquisitions (WTG Midstream, Lotus Midstream, Crestwood Equity Partners), a substantial capital investment plan forecasting about $5 billion in 2025 spending, and expansion of its NGL export facilities. This strategy underpins strong forward-looking earnings estimates, with consensus projections indicating year-over-year growth of 8.59% for 2025 and 10.91% for 2026. From a valuation perspective, ET appears attractive, trading at a trailing 12-month EV/EBITDA multiple of 9.29x, below the industry average of 10.65x. However, a key point of concern is the company's subpar profitability metric; its return on equity (ROE) of 11.08% lags the 13.65% industry average, suggesting less efficient use of shareholder capital. This mixed profile of strong growth and valuation against weaker capital efficiency culminates in a Zacks Rank of #3 (Hold).

Key Decisions for Investors

• Existing investors may consider holding positions in Energy Transfer to capitalize on its stable fee-based revenue model and consistent cash distributions, which have been raised 16 times in the past five years.
• Potential new investors should weigh the firm's discounted valuation, evidenced by its EV/EBITDA of 9.29x versus the industry's 10.65x, against its below-average Return on Equity of 11.08%, which may warrant waiting for a more attractive entry point or signs of improved capital efficiency.
• Monitor the execution of ET's approximately $5 billion capital expenditure program and its impact on future profitability, as successful project deployment could act as a catalyst to close the ROE gap and justify a re-rating.
• Given the divergent performance and earnings outlooks between ET (projected EPS growth of 8.59% in 2025) and PAA (projected EPS decline of 3.97%), investors focused on the midstream sector should note ET's superior fundamental momentum.