Apart from being one of the largest midstream partnerships, engaged in natural gas and propane pipeline transport, the company has made a number of acquisitions and investments across the energy value chain that has led some leading analysts to call it the Berkshire of the energy sector.
As global energy stocks witnessed a strong rally in recent months, Energy Transfer has had a great year too, up by a solid 34% YTD. While this is no small feat, it lags some upstream oil and gas producers that have done well since the war in Ukraine began. As a result, this pipeline company is brimming with potential, with an outlet on the horizon.
The stock remains undervalued in comparison to its midstream peers, mostly owing to the regulatory risks, fueled by some opposition to fossil fuels, and an impending shift towards sustainable energy sources. However, the company’s acquisitions-focused strategy and the resulting diversity has since muted many of these risks, something that remains yet to be priced into the stock.
Apart from this, Energy Transfer has a number of other catalysts in its favor, starting with rising volumes across its asset base, as US rig counts continue to increase. The company witnessed record volumes during the second quarter, as the broader industry shifted gears in favor of increasing domestic production, something that is likely to persist throughout this decade.
Another key catalyst for the company comes in the form of strong insider buying activity, and as the saying goes, there might be innumerable reasons why an insider sells a stock, but there is only one reason for them to buy — they expect good things ahead. One of the co-founders of the company, Kelcy Warren recently increased his stake in the company by 3 million shares, a great sign for investors.
ET Partners currently remains a deep value opportunity in comparison to peers in the midstream industry. Trading at just 0.40 times sales, and under 7 times earnings, the company represents robust growth prospects as it becomes increasingly evident that crude oil and natural gas prices are unlikely to witness a prolonged slump in the coming years, like what was seen in 2015, and in 2020 during the pandemic.
Stocks in this sector have long been weighed down by regulatory headwinds, especially pertaining to its Dakota Access Pipeline, which resulted in expensive delays and lawsuits. However, governments around the world, and consumers have awakened to the ongoing importance of fossil fuels until renewable sources start to come of age, and thus the company should see a renewed push going forward, with little roadblocks from activists and regulators.
Analysts continue to reiterate a “Buy” on the stock with the average price consensus at $14.60, presenting an upside of 26%. Some have a target as high as $20, representing an incredible 73% upside from current levels. As inflationary pressures continue to persist, and markets continue to reel from a prolonged bearish streak, this stock can offer much-needed cover, as well as a hedge against the broader markets.