Can Fee-Based Contracts Continue to Boost ET Stock's Performance?

Core Insights - Energy Transfer LP (ET) benefits from a fee-based contract model that provides consistent cash flows and shields the company from commodity price volatility [1][2][4][5] Company Overview - Energy Transfer generates nearly 90% of its earnings from fee-based contracts, with only 10% from commodity and spread exposure, indicating a well-balanced asset mix that supports strong earnings [2][9] - The company operates 130,000 miles of pipelines across 44 states, facilitating the transportation of oil and gas products from major basins such as the Permian, Eagle Ford, and Marcellus [3] Financial Performance - The stable cash flow from fee-based contracts supports Energy Transfer's strong distribution policy and debt reduction efforts, maintaining a solid credit profile and lowering financing costs [4] - The Zacks Consensus Estimate for Energy Transfer's earnings per unit for 2025 and 2026 has increased by 2.86% and 4.26%, respectively, over the past 60 days [8] Market Position - Energy Transfer's units have appreciated by 10.2% over the past year, outperforming the Zacks Oil and Gas - Production Pipeline - MLB industry's growth of 6% [10] - The company's units are currently trading at a trailing 12-month EV/EBITDA of 10.17X, which is below the industry average of 11.39X, suggesting that the firm is undervalued compared to its peers [9][12] Industry Context - Midstream operators like Energy Transfer leverage fee-based contracts to generate stable revenues, allowing them to focus on operational efficiency and capital discipline [6] - Other companies in the sector, such as Enterprise Products Partners and Kinder Morgan, also rely heavily on fee-based income to maintain strong cash flows and support infrastructure expansions [7]