Energy Transfer (ET) delivered a strong third-quarter report card. The energy midstream giant’s adjusted EBITDA grew more than 30% year over year, its full-year guidance was raised by $850 million, and the cash flow generated was more than enough to cover its high-yield distribution by more than two times. At the same time, the pipeline operator plans to increase investment in infrastructure projects next year to seize the opportunities presented by rising energy demand. With growth momentum driven by multiple engines, is this pipeline stock with a 6.7% yield worth buying?
Energy Transfer is not a typical slow-growth master limited partnership (MLP). Adjusted EBITDA for the quarter reached $5 billion, a sharp increase of 31% from the prior-year period; distributable cash flow jumped 33% to $2.5 billion. Three major catalysts drove this strong quarter: in natural gas transportation, intrastate transportation and storage EBITDA surged 50% to $346 million, partly thanks to the early completion of the Hugh Brinson pipeline, which drove a 14% increase in volumes and set a partnership record. Strong market conditions, recently completed expansion projects, and acquisition transactions came together in the same quarter to create this impressive performance.
Energy Transfer once again raised its full-year adjusted EBITDA guidance and now expects to achieve $19.7 billion to $19.9 billion this year, an increase of $850 million (about 4.5%) from the midpoint of its previous range of $18.8 billion to $19.1 billion. This is the company’s third consecutive quarterly guidance increase; from an initial expectation of $17.3 billion to $17.7 billion, it now expects full-year adjusted EBITDA growth of about 24%.
Along with raising its full-year earnings guidance, Energy Transfer lowered its 2026 growth capital expenditure range and now expects to invest $5.4 billion to $5.6 billion this year, down from the previous range of $5.6 billion to $5.9 billion, but still at the top of its initial guidance range of $5 billion to $5.5 billion. Investors should not view this as a slowdown in growth. Energy Transfer provided its first 2027 growth capital expenditure outlook, expecting it to rise to about $7 billion, partly due to the recently approved 215-mile Mississippi pipeline project. The project is expected to cost $1.6 billion, and the company expects to bear 51% of the cost. In addition, Energy Transfer recently announced the $2.6 billion acquisition of Vaquero Midstream, which is expected to close in the fourth quarter, will strengthen its position in the Delaware Basin, and should immediately be accretive to distributable cash flow per unit.
Energy Transfer generated $7.8 billion in distributable cash flow in the first nine months of this year, covering its 6.7% yield distribution by as much as 2.2 times, providing a solid foundation for long-term total returns. Over the past 12 months, distributable cash flow per unit has grown by more than 20%. The company also has ample cash flow to cover its high distribution, a clear growth project backlog, and accretive acquisitions, and its valuation is at a relatively low level, offering investors seeking income and total return a fairly attractive allocation opportunity.
