Hook & thesis
Energy Transfer is a classic toll-road business for oil and gas flows: pipeline capacity and storage that collect fees regardless of commodity price swings. At the current market price near $18.98 the security offers a high-running distribution yield (roughly 6.9%) while trading at a reasonable valuation (EV/EBITDA ~8.8x; P/E ~15.6x). With the company reporting record 2025 results and management forecasting mid-to-high single-digit to low double-digit EBITDA growth in 2026, the market is pricing a lot of the upside into cashflow rather than equity appreciation. That creates a tactical opportunity: buy a yield and wait for project-driven EBITDA and distribution growth to compress risk premia.
Put simply: this is a trade that leans on predictable toll revenues, visible expansion projects and a high current yield to deliver both income and price appreciation. I rate ET as a mid-term long trade (45 trading days) with a clear entry, stop and target specific to that horizon.
Business overview - why the market should care
Energy Transfer operates a diversified midstream footprint across natural gas, NGLs, refined products and crude oil. The company generates fee-based cashflows from pipelines, storage and terminals - a business model that behaves like an industrial toll road. That structure yields steady distributable cash flow and strong coverage when throughput contracts are in place.
Concrete scale matters: the company controls a very large pipeline network and related assets that the market values for their utility-like cash generation. Management reported record 2025 adjusted EBITDA and distributable cash flow - headlines showed roughly $16 billion of adjusted EBITDA and $8.2 billion of distributable cash flow for 2025 - figures that comfortably cover the current distribution and support plans for continued expansion. The firm expects 9-12% EBITDA growth in 2026 driven by acquisitions at affiliates and several large expansion projects coming online, and is targeting 3-5% annual distribution growth thereafter.
Why the numbers make this actionable
- Price: trading around $18.98, a float-sized name with high liquidity (average daily volume ~17m shares).
- Yield: distribution yields reported ~6.9% (market signal: income investors are being compensated for midstream operational risk).
- Valuation: market cap roughly $65.15B and enterprise value of ~$132.2B implies EV/EBITDA ~8.8x and P/E ~15.6x - reasonable for an asset-heavy midstream operator with visible growth projects.
- Cash generation: free cash flow roughly $3.85B in the most recent reported period, and distributable cash flow of roughly $8.2B in 2025 per company reporting.
- Balance sheet / leverage: debt-to-equity near 2.0 and public commentary from management indicates leverage ratios in the ~4.0-4.5x range - leverage is real but manageable when coverage is healthy.
Valuation framing
At an EV/EBITDA of ~8.8x and P/E ~15.6x, Energy Transfer is priced like a mature midstream operator with decent growth but elevated financial leverage. Those multiples sit at the lower end of what you might expect for a stable, fee-based pipeline operator that is also funding significant expansions. Put another way: the market is demanding a higher yield/discount relative to utilities and some integrated energy names because of leverage, past distribution volatility and capital intensity. If management hits the 2026 EBITDA guidance (9-12% growth) and expansion projects ramp as planned, the combination of rising EBITDA and steady distribution increases should allow the security to re-rate toward a mid-teens EV/EBITDA multiple, which would translate into meaningful price appreciation on top of the yield.
Catalysts (2-5)
- Project completions and ramp - several large pipeline expansions (including a major Transwestern-type project) have capex in the $5-5.6B range; successful on-time commissioning would lift fee-based cash flows.
- Affiliated acquisitions - planned affiliate MLP acquisitions and integrations that are expected to add EBITDA in 2026.
- Distribution growth guidance - management target of 3-5% annual distribution growth; confirmation of this cadence would reduce perceived distribution risk.
- Macro tailwinds - lower interest rates or better risk appetite for high-yield names could narrow yield spreads and support multiple expansion.
Trade plan - exact entry, stop, targets and horizon
| Action | Price | Horizon |
|---|---|---|
| Entry | $18.98 | Primary: mid term (45 trading days). If you intend to collect another distribution and let projects run, consider a secondary leg to long term (180 trading days). |
| Target | $21.50 | |
| Stop Loss | $17.50 |
Rationale: the entry at $18.98 captures the current yield and near-term momentum. The $21.50 target reflects partial re-rating to mid-teens EV/EBITDA and some multiple expansion as projects come online. The $17.50 stop sits below recent technical support and limits downside to roughly -7.8% should throughput or macro sentiment deteriorate quickly. For conservative income-focused investors, a secondary, longer-duration leg (180 trading days) could be held to collect distributions and wait for larger project-driven re-rating.
Technical and positioning notes
Momentum indicators are stretched but constructive: short-term averages are above longer-term ones and MACD is in bullish momentum, while RSI sits near the overbought threshold (~70.7). That argues for a staged entry or waiting for a light pullback into the $18.25-$18.75 range if you prefer better risk-reward. Short interest and days-to-cover remain low, suggesting limited squeeze risk if the price rallies.
Risks and counterarguments
- Leverage and capital intensity: debt-to-equity near 2.0 and reported leverage metrics in the ~4.0-4.5x range mean the company is sensitive to large capital overruns or prolonged volume declines. A mis-executed $5B+ expansion could damage coverage and force distribution cuts.
- Distribution history: Energy Transfer has a past distribution cut (notably in 2020). That history keeps a risk premium attached to the yield; if commodity or throughput weakness re-emerges, the market will re-price the security quickly.
- Commodity / volume risk: while toll-based, volumes matter; a sustained decline in production or refinery runs in key basins would reduce fee volumes and pressure cashflow.
- Regulatory / ESG pressure: pipeline projects face permitting and political risk. Slower approvals, litigation or tougher permitting could delay projects and increase capex.
- Counterargument: for conservative dividend buyers, a rival with a longer streak of distribution increases and an investment-grade balance sheet (for example Enterprise Products Partners referenced in market commentary) offers lower yield but materially less distribution risk. If you prioritize distribution durability over yield, that profile may be preferable to ET’s higher but slightly riskier payout.
What would change my mind
I would downgrade the thesis if any of the following occur: 1) management abandons the 3-5% distribution growth target or reduces coverage guidance materially; 2) a major project suffers a multi-quarter delay and guidance is reduced; 3) net leverage creeps meaningfully above the 4.5x area without offsetting cashflow improvements; or 4) distributable cash flow falls below the level needed to comfortably cover the distribution (i.e., coverage materially below 1.0x). Conversely, consistent delivery of 9-12% EBITDA growth and steady distribution increases would cause me to increase the target and shift to a longer-term buy-and-hold stance.
Conclusion
Energy Transfer is an actionable mid-term long that pairs a high current yield with tangible catalysts for earnings and distribution growth. The risk-reward is attractive at $18.98 given EV/EBITDA ~8.8x, free cash flow generation, and visible project-driven EBITDA upside. Use a disciplined entry and a firm stop at $17.50 to keep the trade size manageable; if projects and guidance confirm management’s view, the security should re-rate and deliver price appreciation while you collect a high-running distribution.
Trade checklist: Buy near $18.98, stop $17.50, target $21.50. Hold primarily for mid-term re-rating and yield capture; extend to long term if distribution cadence and project ramps validate management guidance.