Why Energy Transfer Partners LP Stock Is Going Nowhere in 2014

For the first time since 2011, the Alerian Index, which tracks 50 master limited partnerships, is outperforming the S&P 500. It's impressive, especially given that the index doesn't include young upstart MLPs like Emerge Energy Services or Hi-Crush Partners, which, year to date, are up 216% and 73%, respectively. Even units of lumbering-yet-reliable MLPs like Enterprise Products Partners are enjoying banner years, which makes 2014 that much more painful for unit holders of Energy Transfer Partners. This stock has gone nowhere this year, and may be poised to go nowhere for the rest of the year. Let's take a closer look.

ETP Chart

ETP data by YCharts.

At the time of this writing, Energy Transfer Partners is up less than 1% year to date. Despite being "cheap" relative to its peers, analysts rate it a buy, and posting a strong yield of 6.7%, the market does not have any love for this MLP.

Part of the reason investors won't buy Energy Transfer Partners is because there are better options for growth, and better options for reliability. Let's look at growth first. Here is a look at five years of revenue and distribution growth for Energy Transfer Partners and Magellan Midstream Partners:

ETP Revenue (Annual) Chart

ETP Revenue (Annual) data by YCharts.

Clearly, Magellan is able to turn revenue growth into distribution growth, while ETP is not.

Now let's have a look at reliability. Here's the 10-year distribution history for Energy Transfer Partners compared to Enterprise Products Partners:

ETP Dividend Chart

ETP Dividend data by YCharts.

Enterprise has increased its distribution every quarter for the last nine years, including straight through the recession. That is the mark of reliability.

Magellan and Enterprise have both grown revenue and distributions at a relatively steady pace, but that is not the case with Energy Transfer Partners, which used a major acquisition to drive revenue growth, and is only now able to raise its distribution after a five-year hiatus. Unsurprisingly, the history bears out in unit price performance: Magellan is up 33% year to date, while Enterprise is up 20%. Investors are clearly more interested in reliable distribution growth than whether or not Energy Transfer Partners is cheap, despite nearly everyone agreeing that it is in fact, dirt-cheap right now.

A lackluster history might explain why ETP has done poorly so far, but what does the future hold? Right now, it's a big game of wait-and-see. Here are just a few potential projects coming down the pike for Energy Transfer:

That is a significant slate, and at another MLP, that might be enough to generate investor enthusiasm, but at Energy Transfer, these are just impressive question marks. Will they come to fruition? The LNG export terminal is perhaps the biggest question mark there. Will they generate the expected revenue? And if so, will management be able to turn that into impressive distribution growth?

Frankly, Energy Transfer's management team doesn't have the track record of execution that other management teams have, so despite these growth initiatives, and despite the improved operational and geographic diversity ETP has attained over the last five years, investors remain hesitant.

Bottom line
Energy Transfer Partners' future may be brighter than its past, but investors can't be blamed for sitting on the sidelines until distribution growth ramps up and management proves it can deliver strong, sustainable results over time.

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Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 18, 2014, at 12:59 PM, scopen wrote:

    Have you made a mistake? ETP is at all time highs. Why would you say this stock is going nowhere? You are completely wrong and show little credibility in your headline.

  • Report this Comment On September 18, 2014, at 1:25 PM, XMFAimeeD wrote:

    ^Most MLPs are at all time highs right now. With one or two exceptions, you could have put your money in any of them and done far better than ETP. That's true YTD, and over the last 10 years. Management is clearly trying to change that, but it hasn't played out in the stock price yet.

    Aimee

  • Report this Comment On September 18, 2014, at 9:22 PM, brenoboyle wrote:

    "Most MLPs are at all time highs right now. With one or two exceptions, you could have put your money in any of them and done far better than ETP. That's true YTD, and over the last 10 years."

    The total return on ETP over the past ten years is 457%. I don't know what is is for the whole index which doesn't go back that far, but I seriously doubt the return is much greater than an 18% CAGR.

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