Energy Transfer Stock May Be Down, but Is it Out?

Energy Transfer (ET) has seen its unit price decline over 10% this year due to a significant slowdown in growth, with H1 2025 adjusted EBITDA growth at 4% and distributable cash flow at less than 1%, leading to a full-year EBITDA forecast of under 4% growth. Despite this underperformance, the company projects a substantial reacceleration of earnings and cash flow from late 2025 into the next decade, propelled by $5 billion in growth capital projects coming online and newly secured long-term expansions like the $5.3 billion Desert Southwest pipeline. Leveraging its strongest financial position to date, ET is poised for future growth and potential acquisitions, suggesting the current unit price dip could represent a compelling opportunity for investors seeking its over 7.5% distribution yield and anticipated income growth.

Analysis

Energy Transfer (ET) is experiencing a significant disconnect between its current stock performance and its forward-looking operational outlook. The unit price has declined by over 10% year-to-date, starkly underperforming the S&P 500's approximate 10% gain. This weakness is directly attributable to a material growth deceleration in 2025, where H1 adjusted EBITDA growth slowed to 4% and distributable cash flow growth fell below 1%, a sharp contrast to the record 13% EBITDA growth in 2024. Consequently, the company has guided full-year 2025 EBITDA growth to the low end of its range, implying less than 4% expansion. However, the investment thesis hinges on a projected reacceleration beginning in late 2025 and extending through 2026, driven by a $5 billion capital expenditure program. This includes new gas processing plants and pipeline expansions set to come online. Looking further out, growth visibility extends into the next decade with the recent approval of the $5.3 billion Desert Southwest expansion. The company's financial position, described as the strongest in its history, provides capacity for further M&A, while its investment in Sunoco LP is set to benefit from an accretive acquisition, providing an additional tailwind.

Key Decisions for Investors

• Given the unit price decline is tied to a temporary 2025 growth slowdown, long-term investors may consider the current weakness a strategic entry point to capture both a potential rebound and the forward-looking growth from 2026 onwards.
• Monitor the execution and in-service timelines for the $5 billion in capital projects, as the reacceleration thesis is contingent on these assets coming online as scheduled; any delays would pose a risk to the expected earnings recovery.
• Watch for final investment decisions on key development projects, such as the Lake Charles LNG facility, as securing these would serve as a major catalyst by extending and de-risking the long-term cash flow profile.
• Investors should factor in the attractive over 7.5% distribution yield as a significant component of total return, but also be aware that as an MLP, Energy Transfer issues a Schedule K-1, which has specific tax implications.