Energy Transfer (NYSE:ET) got 2019 off to an excellent start by posting record results during the first quarter. The mammoth MLP expanded both its earnings and cash flow by about 39%, fueled by recently completed growth projects. That kept the company on track to achieve its full-year forecast, which would see it grow earnings by about 12% at the midpoint of its outlook.
Investors will get their next data point on the company's progress later this week when it announces second-quarter results. Here are three things they should keep an eye on.
1. Is commodity price volatility impacting its forecast?
While Energy Transfer doesn't produce any oil and gas, the company does have some direct exposure to commodity prices. That's a bit of a concern since crude crashed during the quarter while natural gas recently fell to its lowest price in several years.
This recent volatility likely won't have much impact on the company since long-term contracts and other stable sources should supply it with about 85% of its expected earnings this year. However, there is some concern since weaker prices will likely have a bit of an impact on the company's results this year. Because of that, investors should see if Energy Transfer makes any adjustments to its full-year forecast, which currently anticipates that its adjusted EBITDA will range between $10.6 billion and $10.8 billion.
2. Check if it secured any more expansion projects
Energy Transfer has been in the middle of a large-scale expansion phase over the past few years. The midstream company expects to spend another $5 billion on growth projects this year. That investment level not only supports 2019's growth-focused outlook, but should also keep earnings moving higher over the next few years.
The company's expansion backlog, however, is starting to thin out given all the projects it has finished over the past few years. While the company is working to refill its backlog, it pulled the plug on a large-scale oil pipeline project earlier this year after it lost out to a competing one. Because of that, investors should keep an eye on the company's progress in securing additional projects.
One expansion to watch closely is a plan to double the capacity of its Bakken Pipeline System. The company has already added 100,000 barrels per day (BPD) to the system since it started up in June 2017. It wants to add another roughly 500,000 BPD of capacity. What makes this project worth watching is that the company faces an uphill battle in securing those barrels given all the rival pipeline projects in various stages of development.
3. See if it made any more strategic moves
At the same time Energy Transfer has been rapidly expanding its systems, it has also been working to shore up its balance sheet. It has done this by selling assets and using the cash to fund growth projects as well as pay down debt.
The company reportedly has more asset sales in the works. According to Bloomberg, it was seeking buyers for its stake in the recently completed Rover Pipeline, which could net it as much as $2.5 billion. The company has also considered selling its stake in USA Compression Partners as well as other noncore assets.
Another reason the company is looking to sell assets is that it's also reportedly contemplating some acquisitions. It's among those considering buying a 20% stake in a crude oil export project in Corpus Christi, Texas. In addition, analysts think that Energy Transfer might bid on Western Midstream. According to reports, Occidental Petroleum could sell part of its stake to help pay for the acquisition of Western's current parent, Anadarko Petroleum.
The hope: Keeping the headwinds at bay
Energy Transfer got 2019 off on the right foot by delivering excellent first-quarter results, fueled by its needle-moving expansion program. While those growth projects should have pushed earnings higher in the second quarter, the company also likely battled headwinds from renewed oil price volatility. The hope is that the company easily overcame those issues and that they won't impact its full-year forecast. If the company can do that, continue to securing more expansions, and improve its balance sheet, its high-yielding distribution will be even more attractive.