Units of Energy Transfer (ET +0.29%) have fallen below $17 over the past month. As a result, the master limited partnership (MLP) now yields more than 8%.
Here's a look at whether it's time to buy the high-yielding MLP.
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Why is Energy Transfer down?
Units of Energy Transfer are down over 15% year-to-date. That slump has come at a time when the S&P 500 has rallied over 16%.
The main factor fueling Energy Transfer's underperformance is its slowing growth rate. The energy midstream giant grew its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at a 10% compound annual rate from 2020 through 2024. Fueling its robust growth rate was a combination of improving market conditions, accretive acquisitions, and organic expansion projects. The MLP closed a series of needle-moving deals, including Enable Midstream ($7.2 billion in 2021), Crestwood Equity Partners ($7.1 billion in 2023), and WTG Midstream ($3.3 billion in 2024).
However, its growth rate has slowed considerably this year. Energy Transfer expects its adjusted EBITDA to be slightly below the lower end of its $16.1 billion to $16.5 billion guidance range. That's less than 4% above last year's level. The company is growing more slowly due to the impact of lower oil prices, fewer organic expansion completions, and the absence of new acquisitions.
NYSE: ET
Key Data Points
A reacceleration is coming
While Energy Transfer is growing more slowly this year, it's about to stomp on the gas. The company is investing $4.6 billion in growth capital projects this year and plans to invest an additional $5 billion in 2026. It has recently completed several expansion projects, including some new gas processing plants and its Nederland Flexport NGL expansion project. Meanwhile, it has several more projects on track to enter commercial service next year, including phase I of its Hugh Brinson Pipeline, its 9th NGL fractionator at its Mont Belvieu complex, and another gas processing plant. These projects will supply it with meaningful incremental cash flow over the next two years as they enter commercial service and ramp up their volumes.
Additionally, the company has secured several new gas supply agreements to support the growing power demand of AI data centers. It's providing gas to three Oracle data centers, with the first flow expected by the end of this year, and continuing through the middle of 2026. The company also signed a gas supply deal with utility Entergy, which will begin at the end of 2028, and agreed to provide gas to data center developments by CloudBurst and Fermi, pending approval of those projects.
Energy Transfer also has several other large-scale expansions either underway or in development. It approved the $5.3 billion Desert Southwest Expansion project, which it expects to complete by the fourth quarter of 2029. Additionally, it's nearing approval for the Dakota Access North Project and Lake Charles LNG Export Terminal. These projects significantly enhance and extend the long-term visibility of its growth profile. They also support its plans to increase its already high-yielding distribution by 3% to 5% each year.
A bottom-of-the-barrel valuation
With its unit price slumping this year, Energy Transfer has gotten even cheaper. The MLP currently trades at less than nine times EBTIDA. That's the second-lowest valuation among large-scale energy midstream companies, with the average being closer to 12 times EBITDA.
There's no discernible reason for that valuation discount. Energy Transfer is in the strongest financial position in its history. Further, although its growth rate is slowing this year, it's still growing at a solid rate within the industry. Meanwhile, its growth rate should accelerate in 2026 and beyond as its expansion projects enter service.
Energy Transfer looks like a great buy below $17
Energy Transfer's slump has the MLP trading at a lower valuation and a higher distribution yield. That's an attractive combination for a company that should deliver faster growth in the future. It makes the MLP look like a compelling investment opportunity at its current price point for investors comfortable receiving the Schedule K-1 Federal Tax Form it sends each year.
