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Energy Transfer Stock's Earnings Estimates Going Down: Hold or Fold?
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The Zacks Consensus Estimate for Energy Transfer’s (ET - Free Report) 2024 and 2025 earnings per unit has dropped by 7.5% and 11.8%, respectively, in the past 60 days. The downward revision in earnings estimates indicates analysts’ decreasing confidence in the stock.
This midstream oil and gas firm also missed the Zacks Earnings Estimates in the trailing two quarters.
The firm has trailed its industry in the past three months.
ET Unit’s Price Performance
Image Source: Zacks Investment Research
Factors Acting as Headwinds for ET Stock
The firm earns a substantial amount of its revenues from a few customers. Mergers among its customers and competitors could result in lower volumes being shipped on its pipelines or products stored in or distributed through ET’s terminals or reduced crude oil marketing margins or volumes.
The firm depends on some key producers for its supply of natural gas. The loss of any of these key producers is likely to have adversely impacted its financial results unless the firm is able to acquire comparable supplies of natural gas from other producers.
Despite having a well-spread-out operation, fluctuation in commodity prices, which is beyond the control of the firm, is expected to have negatively impacted its profitability.
The introduction of the Inflation Reduction Act 2022 offers incentives for various clean energy industries and could lead to a decline in demand for crude oil and natural gas, increase ET's compliance and operating costs and consequently adversely affect its business.
Factors Acting as Tailwinds for ET Stock
Energy Transfer owns more than 130,000 miles of pipelines across the United States and is expanding its operation through organic initiatives and strategic acquisitions. ET’s operations are spread across 44 states. The firm has been making one large accretive acquisition each year since 2021. The WTG acquisition closed earlier this year and expanded ET’s natural gas pipeline and processing network in the Permian Basin.
ET’s Earnings Estimates Are Coming Down
ET’s full-year earnings estimates are going down, and a similar trend could be noticed in its quarterly projections. The firm also lagged the Zacks Consensus Estimate in the last two quarters with an average miss of 6.9%.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2024 and 2025 earnings per unit of another firm, Delek Logistics Partners (DKL - Free Report) , operating in the same space went up by 4.3% and 12.1%, respectively, in the last 60 days.
ET’s Debt Level Higher Than Industry Average
Energy Transfer issues debt from time to time to provide liquidity for new capital projects of its subsidiaries, fund acquisitions or for other partnership purposes. The total long-term of the firm as of June 30, 2024, was $57.4 billion, up from $51.3 billion as of Dec. 31, 2023. The debt to capital of the firm at the end of the second quarter was 55.9%, higher than its industry average of 54.76%.
ET’s Returns Are Lower Than Industry
Energy Transfer’s trailing 12-month return on equity is 12.74%, lower than the industry average of 15%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.
Image Source: Zacks Investment Research
ET’s Units Are 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) being 10.37X compared with the industry average of 11.75X.
ONEOK Inc. (OKE - Free Report) , operating in the same industry, is currently trading at EV/EBITDA TTM of 14.63X, a premium compared to the industry average.
Image Source: Zacks Investment Research
Summing Up
Energy Transfer has widespread operations across the United States and is expanding operations through acquisitions and organic methods.
Despite Energy Transfer’s stock trading at a discount, the lower-than-expected earnings in the last two reported quarters, downward revision in earnings estimates, return on equity lower than the industry and debt level higher than the industry average do not paint a bright picture for the firm in the near term.
For the time being, it will be better for investors to stay away from this Zacks Rank #5 (Strong Sell) stock, at least in the near term.
Image: Bigstock
Energy Transfer Stock's Earnings Estimates Going Down: Hold or Fold?
The Zacks Consensus Estimate for Energy Transfer’s (ET - Free Report) 2024 and 2025 earnings per unit has dropped by 7.5% and 11.8%, respectively, in the past 60 days. The downward revision in earnings estimates indicates analysts’ decreasing confidence in the stock.
This midstream oil and gas firm also missed the Zacks Earnings Estimates in the trailing two quarters.
The firm has trailed its industry in the past three months.
ET Unit’s Price Performance
Image Source: Zacks Investment Research
Factors Acting as Headwinds for ET Stock
The firm earns a substantial amount of its revenues from a few customers. Mergers among its customers and competitors could result in lower volumes being shipped on its pipelines or products stored in or distributed through ET’s terminals or reduced crude oil marketing margins or volumes.
The firm depends on some key producers for its supply of natural gas. The loss of any of these key producers is likely to have adversely impacted its financial results unless the firm is able to acquire comparable supplies of natural gas from other producers.
Despite having a well-spread-out operation, fluctuation in commodity prices, which is beyond the control of the firm, is expected to have negatively impacted its profitability.
The introduction of the Inflation Reduction Act 2022 offers incentives for various clean energy industries and could lead to a decline in demand for crude oil and natural gas, increase ET's compliance and operating costs and consequently adversely affect its business.
Factors Acting as Tailwinds for ET Stock
Energy Transfer owns more than 130,000 miles of pipelines across the United States and is expanding its operation through organic initiatives and strategic acquisitions. ET’s operations are spread across 44 states. The firm has been making one large accretive acquisition each year since 2021. The WTG acquisition closed earlier this year and expanded ET’s natural gas pipeline and processing network in the Permian Basin.
ET’s Earnings Estimates Are Coming Down
ET’s full-year earnings estimates are going down, and a similar trend could be noticed in its quarterly projections. The firm also lagged the Zacks Consensus Estimate in the last two quarters with an average miss of 6.9%.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2024 and 2025 earnings per unit of another firm, Delek Logistics Partners (DKL - Free Report) , operating in the same space went up by 4.3% and 12.1%, respectively, in the last 60 days.
ET’s Debt Level Higher Than Industry Average
Energy Transfer issues debt from time to time to provide liquidity for new capital projects of its subsidiaries, fund acquisitions or for other partnership purposes. The total long-term of the firm as of June 30, 2024, was $57.4 billion, up from $51.3 billion as of Dec. 31, 2023. The debt to capital of the firm at the end of the second quarter was 55.9%, higher than its industry average of 54.76%.
ET’s Returns Are Lower Than Industry
Energy Transfer’s trailing 12-month return on equity is 12.74%, lower than the industry average of 15%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.
Image Source: Zacks Investment Research
ET’s Units Are 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) being 10.37X compared with the industry average of 11.75X.
ONEOK Inc. (OKE - Free Report) , operating in the same industry, is currently trading at EV/EBITDA TTM of 14.63X, a premium compared to the industry average.
Image Source: Zacks Investment Research
Summing Up
Energy Transfer has widespread operations across the United States and is expanding operations through acquisitions and organic methods.
Despite Energy Transfer’s stock trading at a discount, the lower-than-expected earnings in the last two reported quarters, downward revision in earnings estimates, return on equity lower than the industry and debt level higher than the industry average do not paint a bright picture for the firm in the near term.
For the time being, it will be better for investors to stay away from this Zacks Rank #5 (Strong Sell) stock, at least in the near term.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.