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Is Energy Transfer (ET) a Buy Following Permian Basin JV?
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Oil and gas midstream firm Energy Transfer LP (ET - Free Report) recently announced that it has entered into a crude oil joint venture with Sunoco LP (SUN - Free Report) that combines their crude oil and produced water-gathering assets in the Permian Basin to enhance their operations and financial performances.
Energy Transfer has gained 21.7% in the year-to-date period compared with the industry’s increase of 19.9%. The firm has also outperformed its sector and the Zacks S&P 500 composite’s rally in the same time frame.
Price Performance YTD
Image Source: Zacks Investment Research
Deal to Boost Energy Transfer’s Prospects
Energy Transfer will be the operator of this crude oil JV with 67.5% interest. It will operate more than 5,000 miles of crude oil and water gathering pipelines with crude oil storage capacity of over 11 million barrels in the Permian Basin. Energy Transfer’s larger share of interest in the JV reflects the significant contributions and operational responsibilities assumed by the company as the operator of the venture.
The firms will utilize their expertise and high-quality assets to assist exploration and production companies in the Permian Basin and benefit from the rising crude oil volumes from this region.
The JV will be accretive to distributable cash flow per LP unit for Energy Transfer as the combined assets of the companies will operate in one of the most prolific oil-producing regions in the United States.
Expansion Through Acquisition
Energy Transfer recently completed the previously announced acquisition of WTG Midstream Holdings LLC. The firm paid $2.28 billion in cash and nearly 50.8 million newly issued ET common units to complete the acquisition.
This acquisition expanded Energy Transfer’s presence in the Midland Basin as it added 6,000 miles of complementary gas-gathering pipelines in the region. The deal added eight gas processing plants with a total capacity of 1.3 billion cubic feet per day and two additional processing plants, which are under construction. Energy Transfer expects the WTG assets to add 4 cents of Distributable Cash Flow per common unit in 2025, increasing to around 7 cents per common unit in 2027.
The stable performance of the firm allows management to share more cash with its unitholders. In April 2024, the firm raised its quarterly cash distribution rate to 31.75 cents per unit from 31.5 cents, reflecting a sequential increase of 0.8%
Estimates Moving Up
The Zacks Consensus Estimate for Energy Transfer’s 2024 and 2025 earnings per unit has moved up 1.4% and 0.6%, respectively, in the past 30 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
Image Source: Zacks Investment Research
Trading at a Discount
Energy Transfer units are somewhat inexpensive on a relative basis, with its current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA TTM) being 10.29X compared with the industry average of 11.76.
Image Source: Zacks Investment Research
Summing Up
Energy Transfer will undoubtedly benefit from its JV in the prolific Permian Basin. Additionally, the acquisition of WTG Midstream will expand its operation in the Midland Basin.
Entergy Transfer, with more than 130,000 miles of pipeline and related infrastructure in 44 states, is poised well to benefit from the improving oil, natural gas and natural gas liquid production volumes in the United States.
This can be a favorable entry point for investors, given the positive movement in earnings estimates and the firm trading at a discount. Energy Transfer currently has a VGM Score of A, which indicates a strong performance.
Those who already own this Zacks Rank #3 (Hold) stock would do well to retain it in their portfolio.
Image: Bigstock
Is Energy Transfer (ET) a Buy Following Permian Basin JV?
Oil and gas midstream firm Energy Transfer LP (ET - Free Report) recently announced that it has entered into a crude oil joint venture with Sunoco LP (SUN - Free Report) that combines their crude oil and produced water-gathering assets in the Permian Basin to enhance their operations and financial performances.
Energy Transfer has gained 21.7% in the year-to-date period compared with the industry’s increase of 19.9%. The firm has also outperformed its sector and the Zacks S&P 500 composite’s rally in the same time frame.
Price Performance YTD
Image Source: Zacks Investment Research
Deal to Boost Energy Transfer’s Prospects
Energy Transfer will be the operator of this crude oil JV with 67.5% interest. It will operate more than 5,000 miles of crude oil and water gathering pipelines with crude oil storage capacity of over 11 million barrels in the Permian Basin. Energy Transfer’s larger share of interest in the JV reflects the significant contributions and operational responsibilities assumed by the company as the operator of the venture.
The firms will utilize their expertise and high-quality assets to assist exploration and production companies in the Permian Basin and benefit from the rising crude oil volumes from this region.
The JV will be accretive to distributable cash flow per LP unit for Energy Transfer as the combined assets of the companies will operate in one of the most prolific oil-producing regions in the United States.
Expansion Through Acquisition
Energy Transfer recently completed the previously announced acquisition of WTG Midstream Holdings LLC. The firm paid $2.28 billion in cash and nearly 50.8 million newly issued ET common units to complete the acquisition.
This acquisition expanded Energy Transfer’s presence in the Midland Basin as it added 6,000 miles of complementary gas-gathering pipelines in the region. The deal added eight gas processing plants with a total capacity of 1.3 billion cubic feet per day and two additional processing plants, which are under construction. Energy Transfer expects the WTG assets to add 4 cents of Distributable Cash Flow per common unit in 2025, increasing to around 7 cents per common unit in 2027.
The stable performance of the firm allows management to share more cash with its unitholders. In April 2024, the firm raised its quarterly cash distribution rate to 31.75 cents per unit from 31.5 cents, reflecting a sequential increase of 0.8%
Estimates Moving Up
The Zacks Consensus Estimate for Energy Transfer’s 2024 and 2025 earnings per unit has moved up 1.4% and 0.6%, respectively, in the past 30 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
Image Source: Zacks Investment Research
Trading at a Discount
Energy Transfer units are somewhat inexpensive on a relative basis, with its current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA TTM) being 10.29X compared with the industry average of 11.76.
Image Source: Zacks Investment Research
Summing Up
Energy Transfer will undoubtedly benefit from its JV in the prolific Permian Basin. Additionally, the acquisition of WTG Midstream will expand its operation in the Midland Basin.
Entergy Transfer, with more than 130,000 miles of pipeline and related infrastructure in 44 states, is poised well to benefit from the improving oil, natural gas and natural gas liquid production volumes in the United States.
This can be a favorable entry point for investors, given the positive movement in earnings estimates and the firm trading at a discount. Energy Transfer currently has a VGM Score of A, which indicates a strong performance.
Those who already own this Zacks Rank #3 (Hold) stock would do well to retain it in their portfolio.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here