Energy Transfer: Accumulate The High Yields While The Market Worries

Energy Transfer (ET) has seen its early 2025 outperformance stagnate, with units remaining below January peaks as market focus shifts towards direct AI infrastructure rather than broader energy plays. Despite this, ET's investment thesis is supported by stable, long-term contractual cash flows and an attractive ~8% forward distribution yield. The upcoming Q2 earnings call will be crucial for management to potentially upgrade its full-year adjusted EBITDA guidance of $16.1B-$16.5B, addressing market skepticism and highlighting future drivers such as a projected CapEx reduction from 2026 and increasing capacity from AI data centers, which underpins the maintained 'Buy' rating.

Analysis

Energy Transfer LP's (ET) share price performance has stagnated following its early 2025 peak, with units trading below the $21.5 level as market enthusiasm pivots toward direct AI infrastructure investments over the broader energy infrastructure sector. Despite this consolidation, ET's core investment thesis remains anchored by its stable, long-term contractual cash flows and an attractive forward distribution yield of approximately 8%, which offers a significant premium over current 2-year (3.9%) and 10-year (4.4%) treasury rates. The upcoming Q2 earnings call is a critical near-term catalyst, where management will need to address market skepticism, potentially by upgrading its full-year adjusted EBITDA guidance from the current range of $16.1B to $16.5B. While the company's growth is tied to a $5B capex plan for LNG and AI data center opportunities, concerns persist around LNG permitting timelines and execution risks on its ambitious project backlog. A key positive is the projected decline in total capex from $6.1B in 2025 to $4.5B in 2026, which is expected to support distributable cash flow per share and aligns with the expected ramp-up of new capacity.

Key Decisions for Investors

• Investors should monitor the upcoming Q2 earnings release for a potential upgrade to the full-year adjusted EBITDA guidance, as this is a key catalyst required to reverse recent share price stagnation and validate the growth thesis.
• Consider the stock's defensive characteristics, as its ~8% distribution yield and fee-based model may provide a buffer against market volatility, although this must be weighed against execution risk on its large project backlog.
• The pullback from a peak valuation multiple of 9.2x, which was above its 5-year average of 8x, could offer an attractive entry point for income-oriented investors, provided management reaffirms a commitment to a stable or growing distribution.
• Acknowledge the position's sensitivity to macroeconomic trends, as the prospect of future interest rate cuts could serve as a significant tailwind for a valuation re-rating of this high-yield equity.