Energy Transfer Earnings: M&A Drives Guidance Increase In Solid Quarter

Key Morningstar Metrics for Energy Transfer

• Fair Value Estimate: $21.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium

What We Thought of Energy Transfer’s Earnings

Energy Transfer’s ET first-quarter earnings were generally solid, thanks to healthy volumes and an incremental $250 million marketing contribution from weather-related volatility. Overall EBITDA improved 13% year over year to $3.88 billion. The recent acquisitions of Crestwood and Lotus were the primary contributors. Even excluding their contributions, crude oil volumes were up 14% year over year, which we consider strong. After updating our model, our $21 fair value estimate and no-moat rating remain unchanged.

2024 guidance was upsized to a midpoint of $15.15 billion, compared with an earlier midpoint of $14.65 billion. The primary contributor is Sunoco’s acquisition of NuStar Energy in an all-stock transaction. After the deal, we estimate Energy Transfer owns about 21% of the combined entity. NuStar adds 9,500 miles of crude and product pipelines, among other assets, so there’s potential for Sunoco to bring additional opportunities to Energy Transfer over time. We’ve reset our EBITDA expectations to $15.4 billion for 2024 and $16.7 billion for 2025, factoring in contributions from NuStar before minority interest.

Somewhat unsurprisingly, given its propensity for spending, Energy Transfer also upsized its growth spending guidance for 2024 to $2.9 billion from $2.5 billion as it added new projects. The good news is that management expects several of these efforts to be online in late 2024, and for all to be active within two years, yielding a relatively high return on the incremental capital investment. The bad news is that several higher-profile efforts, such as Lake Charles LNG, the Warrior pipeline proposed for the Permian basin, and the Blue Marlin offshore export port, continue to be pushed further back without a final investment decision.