Please ensure Javascript is enabled for purposes of website accessibility

Here’s Why Energy Transfer Equity LP Plunged 19.2% in February

By Matthew DiLallo - Mar 5, 2016 at 1:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company never recovered after news surfaced that its CFO had been replaced.

What: Units of Energy Transfer Equity (ET -1.97%) and its MLP, Energy Transfer Partners (NYSE: ETP), were hammered last month, after the market learned on February 8th that the general partner had replaced its CFO:

ETE Chart

ETE data by YCharts

Also not helping matters last month was an analyst downgrade and weak fourth-quarter results.

So what: Units of Energy Transfer Partners were eviscerated after it announced that it was replacing its CFO with the CFO of Energy Transfer Partners. While it said that the change was not caused by a disagreement over accounting or financial matters, the move spooked the market. In fact, it earned the company a swift downgrade from Baird, which cut it from outperform to neutral.

In time, however, investors realized that they overreacted a bit, leading to a recovery in the unit price of both companies. At least until the companies reported fourth-quarter results. Those results showed continued weakness in Energy Transfer Partners midstream business due to its exposure to commodity prices, as well as issues at some of its other segments, leading to a steep drop in segment earnings and a questionable distribution coverage ratio. That has investors worried that the company's distribution might not be on solid ground, despite the fact that management said that there's no chance of a distribution cut at either company.

Now what: Investors never like to see a CFO unexpectedly leave a company. That said, Energy Transfer Equity did say that it is having discussions on bringing its former CFO back as a consultant on its LNG project, which suggests that there is nothing amiss. The other big concern weighing on investors minds last month was the continued weakness at several of Energy Transfer Partners' business segments. Those struggles only added to concerns that distributions might not be sustainable during the downturn. So, until the company has the numbers to back up the sustainability of its distribution, investors will likely act under the assumption that it will be reduced. They've already seen enough "secure" dividends go by the wayside this year to remain very skeptical of Energy Transfer's payouts. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Energy Transfer LP Stock Quote
Energy Transfer LP
ET
$9.98 (-1.97%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.