Can ET Gain From Its Expanding Processing Capacity Amid Rising Demand?

Energy Transfer LP (ET) is strategically expanding its natural gas processing capacity, adding 200 MMcf/d across four Permian Basin plants and 275 MMcf/d from its Mustang Draw project in the Midland Basin, expected online by H1 2026. This expansion aims to capitalize on rising hydrocarbon volumes and increasing energy demand, strengthening ET's midstream position, enhancing fee-based income, and improving profitability. The company's units have gained 8.4% over the past year, and its current EV/EBITDA of 9.31X suggests it is undervalued compared to the industry average of 10.65X, with analysts projecting robust earnings growth for 2025 and 2026.

Analysis

Energy Transfer LP (ET) is undertaking a strategic expansion of its natural gas processing capacity to capitalize on rising hydrocarbon production, particularly in the Permian Basin. The company plans to add an incremental 200 MMcf/d of capacity across four existing plants and will bring an additional 275 MMcf/d online with its Mustang Draw project in the first half of 2026. This expansion is designed to increase throughput, solidify its fee-based revenue streams, and enhance cash flows available for unitholder distributions. The bullish outlook is supported by consensus earnings estimates projecting year-over-year growth of 8.59% in 2025 and 10.91% in 2026. Furthermore, ET's units have demonstrated strong relative performance, gaining 8.4% over the past year while the broader industry experienced a 0.7% decline. From a valuation perspective, ET appears inexpensive, with a trailing EV/EBITDA multiple of 9.31X compared to the industry average of 10.65X, suggesting a potential valuation gap relative to its peers.

Key Decisions for Investors

• Given the firm's valuation at a discount to its industry (9.31X EV/EBITDA vs. 10.65X) coupled with a strong earnings growth outlook, investors could see the current price as an attractive entry point for midstream exposure.
• Monitor the execution and timeline of the Permian Basin expansion projects, as their successful and timely completion, particularly the Mustang Draw facility by H1 2026, is critical for realizing projected revenue growth and cash flow stability.
• For income-oriented investors, the planned capacity expansions that aim to enhance stable, fee-based cash flows reinforce the potential for sustained or increased future cash distributions to unitholders.
• Note the stock's significant outperformance over the past year (+8.4%) against its industry (-0.7%), which reflects strong market confidence in its strategy but also warrants consideration of whether this momentum is sustainable.