Core Insights - Midstream master limited partnerships (MLPs) provide reliable income and steady growth, playing a crucial role in the energy value chain by earning stable fees from the transportation, processing, and storage of oil and natural gas [1] Company Summaries - **Energy Transfer**: - The company has improved its balance sheet and distribution coverage, entering a growth phase with plans to invest approximately $5 billion in growth capital expenditures this year, an increase from $3 billion last year [2] - Major projects are focused in the Permian Basin, including the Hugh Brinson pipeline to meet rising Texas power demand and the Desert Southwest pipeline for gas transport to Arizona and New Mexico [3] - The Lake Charles LNG export terminal project is nearing a final decision, with global LNG demand expected to rise significantly over the next decade, potentially securing long-term fee-based revenues [4] - Financially, Energy Transfer is in a strong position with low leverage and about 90% of this year's EBITDA supported by fee-based contracts, offering a nearly 8% yield well-covered by distributable cash flow, with expected annual distribution increases of 3% to 5% [5] - The stock has underperformed this year, presenting a buying opportunity for investors [6] - **Western Midstream Partners**: - This company offers an attractive mix of high yield, strong balance sheet, and steady growth, supported by Occidental Petroleum, which owns over 40% of the partnership [9] - Its contracts are primarily cost-of-service or include minimum volume commitments, ensuring reliable revenue regardless of commodity price fluctuations, with a conservative leverage ratio of around 2.9 [9] - **Genesis Energy**: - The company is positioned as a potential turnaround story, appealing to investors looking for growth opportunities [8]

Financial Position - Energy Transfer has improved its balance sheet significantly after reducing leverage by cutting its distribution in 2020 and funding growth through free cash flow [2][3] - The current leverage is at the low end of the company's target range, with management stating that the balance sheet is the strongest it has ever been, allowing for investment in growth projects and capital returns [3] Cash Flow Stability - Approximately 90% of Energy Transfer's EBITDA comes from fee-based services, providing stability as there is no exposure to commodity prices [4] - The company has a high percentage of take-or-pay contracts, which enhances cash flow visibility and supports distribution and growth projects [5] Distribution and Yield - The stock offers a forward yield of 7.5%, generating twice the cash needed to support its distribution, with a coverage multiple of 2.1 [6] - Energy Transfer has raised its distribution for 13 consecutive quarters and plans to increase it by 3% to 5% annually, supported by a strong balance sheet and contract structure [7] Growth Catalysts - The company plans $5 billion in capital expenditures this year, focusing on projects tied to real demand, including the Hugh Brinson pipeline and the Lake Charles LNG project [9][10] - There is increasing demand for natural gas, with expectations of a 60% rise in LNG exports by 2040, and new opportunities arising from AI data centers [10][11] Valuation - Energy Transfer trades at a forward enterprise-value-to-EBITDA multiple of just 8, significantly below its historical average of around 13.7 from 2011 to 2016 [12] - The market has not fully recognized the improvements in Energy Transfer's business, which includes a cleaned-up balance sheet and disciplined growth strategy [13]