With a Nearly 7% Yield and Soaring Profits, Is Energy Transfer Stock a Buy?

Energy Transfer raised its full-year EBITDA outlook to $18.8B–$19.1B (from $18.2B–$18.6B; vs original $17.3B–$17.7B) after Q2 adjusted EBITDA surged 31% YoY to $5.07B. Distributable cash flow to partners jumped 32% to $2.59B, supporting distributions of $1.17B with a 2.2x coverage ratio, while the stock is up ~25% YTD. Growth is driven by $5.6B–$5.9B of 2026 growth capex (vs $4.5B in 2025) and projects like the Hugh Brinson Pipeline, with Phase 1 in service ahead of schedule.

Analysis

ET is becoming a relative-value story, not just an income trade. The market should care less about the current yield and more about the compounding effect of a large, contracted backlog converting into incremental cash flow; that is what can justify a re-rating from a discounted midstream multiple toward the peer set. The immediate upside is limited by the stock already moving hard year to date, so near-term returns likely depend on whether execution keeps surprising rather than on further multiple expansion alone.

The second-order winner is the broader Permian-to-Gulf Coast gas takeaway chain: more pipe capacity tends to improve utilization and pricing power for adjacent gas infrastructure and export-linked assets, while pressuring smaller regional assets that lack scale or optionality. The key loser is any midstream operator whose growth case relies on commodity-linked volatility without enough contracted volume growth to offset normalization. If volatility cools, ET's optimization margins can compress quickly even if headline volumes remain healthy.

The consensus may be underestimating duration risk: the current narrative assumes that the recent upside is structural, but a lot of the outperformance may be cyclical and rate-sensitive. Over 6-18 months, the test is whether project IRRs hold up in a higher-for-longer rate world and whether coverage stays comfortably above a high threshold after capex steps up. Falsifiers are a project delay, a guide reset, or any evidence that incremental EBITDA is slipping toward transitory rather than durable sources.

Key Decisions for Investors

• Accumulate ET on 3-5% pullbacks over the next 2-6 weeks; target a 6-12 month re-rating if EV/EBITDA moves closer to the upper end of the midstream peer range while the yield remains intact.
• Run a relative-value pair: long ET / short EPD or MPLX for 1-2 quarters, betting ET's growth backlog narrows the valuation discount faster than the higher-quality peers can justify their premium.
• Treat ET as a hold, not an aggressive add, if the next quarterly update shows coverage drifting back toward ~1.5x or if growth capex rises without a commensurate step-up in contracted EBITDA.
• Set a catalyst alert around the next two project milestones; if timing slips, cut exposure because the 6-18 month growth thesis depends on execution, not just a high yield.