Energy Transfer (ET 0.13%) has never been shy about pursuing growth when opportunities come along, and that's what it's expecting in 2025. When the pipeline company reported fourth-quarter earnings this past week, the big news was that it's looking for supercharged growth given the number of strong opportunities it is seeing, including the growing energy needs stemming from artificial intelligence (AI).
Let's delve into the company's most recent results to see if this is a good time to buy the stock.
NYSE: ET
Key Data Points
Ramping up growth spending
Energy Transfer plans to spend $5 billion in capital expenditures (capex) on growth projects in 2025. That is a significant bump from the $3 billion it spent on growth capex in 2024. Much of Energy Transfer's spending will be directed toward the Permian Basin in western Texas and southeastern New Mexico, where it will be used for things such as increasing takeaway capacity, processing expansions, treating upgrades, and compression additions. One of its big projects will be the Hugh Brinson pipeline, which will provide additional natural gas takeaway out of the Permian Basin and connect to Energy Transfer's intrastate natural gas pipeline network.
The company also announced a long-term agreement with CloudBurst Data Centers to provide natural gas to its AI-focused data center developments in central Texas. Energy Transfer will provide CloudBurst's planned facility with 450,000 metric million British thermal units (MMBtu) per day of natural gas from its Oasis pipeline. The deal is subject to CloudBurst reaching a final investment decision with its customer, with the facility expected to be online in the third quarter of 2026.
The CloudBurst agreement is Energy Transfer's first direct deal with a data center provider. However, the company said it now has requests from more than 70 prospective data centers in 12 states. In addition, it has connection requests from approximately 62 power plants in 13 states that it currently does not serve, as well as from 15 plants that it already does serve. It believes that, given its natural gas infrastructure, it is one of the companies best positioned to benefit from increasing natural gas demand.
Turning to Energy Transfer's Q4 results, the company saw its adjusted EBITDA in the quarter climb 8% to $3.88 billion. This it the main metric that midstream companies try to grow.
In January, the company increased its per-share quarterly distribution by 3% year over year to $0.325. That equates to a forward yield of about 6.5% at recent prices. The company continues to expect to increase its distribution by 3% to 5% per year. Energy Transfer's distribution is well covered by its distributable cash flow (DCF) to partners -- which is how much cash a master limited partnership (MLP) like Energy Transfer generates before growth capex.
Looking ahead, Energy Transfer forecast full-year EBITDA to be between $16.1 billion and $16.5 billion, representing around 5% growth. The company has a history of being conservative with guidance and then raising it during the year. With the majority of its current growth projects set to go into service in 2026, it expects a big jump in growth in 2026 and 2027.
Image source: Getty Images.
Is Energy Transfer stock a buy?
There are currently a lot of attractive projects in the midstream space, with both Energy Transfer and Enterprise Products Partners among the companies announcing they are boosting their growth capex. Energy Transfer is looking for mid-teen returns on its projects, which would equate to around $750 million in incremental EBITDA from these projects once they are fully ramped up. That is a solid return for midstream projects and shows the favorable environment the market currently is in with natural gas demand increasing.
While the jump in growth capex is a big step up, Energy Transfer should be pretty close to covering its $5 billion in growth capex and approximately $4.5 billion in distributions with its DCF given its projected EBITDA growth. With its balance sheet and leverage in good shape, it appears well positioned to tackle this growth opportunity.
From a valuation perspective, the stock trades at an enterprise value (EV)-to-EBITDA multiple of about 8.5 times the high end of its 2025 guidance. While its valuation has risen, it's still well below where it traded before the pandemic. Meanwhile, midstream MLPs traded at an average multiple of 13.7 times between 2011 and 2016.
ET EV to EBITDA (Forward) data by YCharts
Overall, Energy Transfer is well positioned to take advantage of the growing opportunities in the midstream space stemming from increasing natural gas demand, while the stock trades at a historically attractive valuation. As such, it continues to look like the stock has solid upside from here, both with price appreciation as well as its robust distribution.
