Prediction: Energy Transfer's Stock Is Still a Buy After a Strong Start to the Year

Energy Transfer raised full-year EBITDA guidance to $18.2B-$18.6B from $17.45B-$17.85B after first-quarter EBITDA jumped 20% year over year to $4.94B, about $500M above expectations. Distributable cash flow rose 17% to $2.7B and coverage was a strong 2.3x, supporting a 6.6% yield and planned 3%-5% distribution growth. The company also increased capex to $5.5B-$5.9B from $5B-$5.5B, signaling a larger project pipeline and continued growth.

Analysis

The main signal is not just that ET is executing, but that its asset base is still under-monetized versus peers: the optimization upside is a recurring option on volatility, not a one-off earnings beat. That matters because midstream rerating usually comes from investors paying up for perceived durability; ET is moving toward a cleaner quality narrative without surrendering its discount, which is a setup for multiple expansion if guidance proves repeatable over the next 2-3 quarters.

The second-order winner is the broader NGL/gas liquids complex, because a heavier capex plan tied to contracted projects suggests more throughput and more fee-based volumes across gathering, processing, fractionation, and export chains. Competitively, this keeps pressure on peers with weaker balance sheets or less project visibility: they may be forced to choose between preserving distributions and chasing growth, while ET is effectively doing both. That can pull capital toward the highest-yield, highest-coverage names and away from lower-quality income substitutes if rates stay elevated.

The key risk is that the market is likely extrapolating first-quarter optimization into run-rate cash flow too aggressively. If spreads normalize or storage/arbitrage opportunities fade over the next 1-2 quarters, the current enthusiasm could compress back to a more “plain-vanilla” midstream valuation, especially if the incremental capex starts to weigh on free cash flow before projects season. In that scenario, the stock still screens cheap, but the catalyst shifts from earnings momentum to balance-sheet patience.

Contrarianly, the more interesting trade is not ET alone but the spread versus higher-multiple midstream peers: if ET sustains its guidance raise and coverage, the discount should narrow faster than the sector’s absolute rerating. However, if rates back up further, ET’s income appeal could attract capital even without multiple expansion, making downside more defensive than the market expects. The asymmetry is that ET can win through either yield demand or growth credibility, while peers need both.

Key Decisions for Investors

• Long ET on a 3-6 month horizon; target a rerating toward peer midstream multiples if management confirms the new EBITDA range in the next print. Risk/reward is favorable because the stock can work via yield support even if multiple expansion is delayed.
• Pair trade: long ET / short EPD or MLPX for 1-2 quarters to express convergence on valuation, with ET as the higher-beta re-rating candidate if guidance is sustained. Close the spread if ET’s incremental EBITDA proves mostly non-recurring.
• Sell downside puts in ET only on post-rally pullbacks, targeting 1-2 month tenors. The high coverage ratio gives a cushion, but avoid naked long exposure if you think optimization gains fade quickly.
• For income-focused portfolios, rotate some exposure from lower-yield utilities or bond-proxy equities into ET over the next month if rates stay sticky. The trade works best when investors are forced to reprice cash yield versus duration.
• Avoid chasing ET after a gap-up extension; wait for a consolidation or a sector-wide dip to improve entry. The name is good, but the market may need a reset before pricing in the full guidance raise.