As a limited partnership offering an expected yield of nearly 8%, Energy Transfer (ET) has consistently been a focus for income-oriented investors. Recently, the company is actively venturing into the emerging market of supplying natural gas to AI data centers, adding a new chapter to its growth story. In recent earnings communications, Energy Transfer disclosed that it has signed natural gas supply agreements with several companies, including Oracle. Among these, three long-term agreements with Oracle are expected to supply 900 thousand cubic feet of natural gas per day to support Oracle’s aggressive data center expansion plans. Additionally, collaborations with companies like Fermi Energy further demonstrate the direct boost from AI development on energy infrastructure, particularly the demand for natural gas.
Beyond the emerging data center demand, Energy Transfer’s traditional large-scale projects are also progressing steadily. Its $5.3 billion Desert Southwest natural gas pipeline project is fully sold out under long-term contracts, with considerations for future expansion. Simultaneously, to meet the robust natural gas demand in the Permian Basin, the company is exploring converting some natural gas liquid pipelines to natural gas pipelines. Regarding capital expenditures, the company plans to invest $4.6 billion in growth capital this year, with an expected investment of approximately $5 billion next year, primarily focused on the natural gas business, targeting returns around 15%.
In terms of financial performance, Energy Transfer’s adjusted EBITDA for the third quarter was $3.84 billion, a slight year-over-year decrease. Cash flow available to partners also modestly declined to $1.9 billion. Despite this, this portion of cash flow still comfortably covered the $1.14 billion in dividend distributions for the quarter, maintaining a healthy dividend coverage ratio of 1.7x. The company expects full-year EBITDA to be slightly below the lower end of the previously guided range of $16.1 billion to $16.5 billion.
Despite short-term performance pressures, the company’s long-term growth drivers remain clear. Several of its expansion projects, such as the completion of the Nederland Flexport and the relocation of the Badger plant, are finished, while natural gas processing plants like Mustang Draw are expected to commence operations next year. These projects, alongside the newly signed supply agreements, will continue to contribute to cash flow in the coming years.
From a valuation perspective, Energy Transfer currently appears quite attractive. Based on analysts’ expectations for 2026 adjusted EBITDA to reach $17.1 billion, its forward Enterprise Value-to-EBITDA multiple is only 7.8x. This valuation level is not only lower than its peers but also nearly half the historical average for the industry. Combining its substantial dividend yield, strengthening project backlog, and relatively low valuation, Energy Transfer offers investors an investment choice with both income and growth potential.
