Is Energy Transfer a Buy After Its Latest Distribution Increase?

Core Viewpoint - Energy Transfer is well-positioned for future growth, with a favorable regulatory environment and increasing energy demands, particularly from AI and data centers [2][10]. Financial Performance - Energy Transfer reported a solid Q3 with adjusted EBITDA rising to $3.96 billion and distributable cash flow (DCF) to partners increasing by $4 million to $1.99 billion [3]. - The company paid out $1.1 billion in distributions, resulting in a distribution coverage ratio of 1.8 times, with $890 million in excess cash flow after distributions [5]. - The per-share distribution was increased by 3.2% year-over-year to $0.3225, yielding approximately 7.4% [4]. Growth Opportunities - The company anticipates full-year EBITDA guidance of $15.3 billion to $15.5 billion, up from initial guidance of $14.5 billion to $14.8 billion, with potential upside from optimization efforts [6]. - Energy Transfer has lowered its growth capital expenditures estimate for the year to between $2.8 billion and $3 billion, while discussing a future run rate of $2.5 billion to $3.5 billion [7]. - The company is experiencing increasing power needs across its pipelines, driven by AI and data centers, with requests to connect to approximately 45 power plants and over 40 prospective data centers [8]. Regulatory Environment - Co-CEO Marshall McCrea expressed optimism about the Trump administration easing regulations, which could benefit LNG export projects [9]. Valuation - The stock trades at an attractive enterprise value (EV)-to-EBITDA multiple of 8.3 times, significantly below pre-COVID-19 levels and the average multiple of 13.7 for midstream MLPs from 2011 to 2016 [11][12]. - Given its valuation, attractive yield, growth opportunities, and improved regulatory environment, Energy Transfer is considered a buy [12].