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The company’s main focus is natural gas; it sells natural gas, and operates significant pipelines. I’m bullish on the stock. (See ET stock charts on TipRanks)
Q2 Results, Valuation
Energy transfer reported its Q2 results in August. The company posted revenues of $15.1 billion (a 105.7% year-over-year increase) and EBITDA of $2.62 billion, an improvement on the $2.44 billion a year ago.
Energy Transfer’s forward P/E ratio (4.8) is trading 52.3% below its five-year average, and 58.16% below its sector average. If you couple this with its forward PEG ratio of 1, it’s safe to say that the stock has plenty of ground to make up.
Furthermore, if you value the stock according to an asset-based valuation, you’ll find that its fair value is $14.65.
The stock has a forward dividend yield of 6.3%. Energy Transfer’s dividend payout ratio is 86.8% lower than its five-year average, and it’s able to cover its dividends by 3.2 times.
These numbers looked at in isolation would suggest that shareholder compensation in the form of further dividend increases, and/or aggressive share buybacks, are a possibility.
Supply Chain Concerns
Surging commodity prices have generated temporary slack for energy producers/suppliers.
Energy Transfer has a strong foothold in the Permian basin. Many analysts believe that operations in the Permian will be fully recovered by 2022, which could bolster output volume, and increase supply contract demand.
Wall Street’s Take
UBS (UBS) recently added Energy Transfer to its list of 20 top dividend stocks due to its income prospects, but also its ability to perform well in a high-yield environment as a value stock.
UBS isn’t the only Wall Street bank upbeat on Energy Transfer stock. The median price target by Wall Street Analysts is $14, and there have been six Buy ratings assigned in the past three months.
Final Thoughts
Energy Transfer is a great stock whether you’re in search of a capital gains play, or a dividend-paying investment.
Disclosure: At the time of publication, Steve Gray Booyens had a long position in ET.
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