Energy Transfer vs Enterprise Partners: which is the better MLP stock?

on Apr 6, 2023
  • Energy Transfer and Enterprise Product Partners are leading MLPs.
  • The two companies store and move millions of barrels of oil per year.
  • ET seems like a better investment because of its cheaper valuation.

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MLPs are some of the most important companies in the mid-stream energy sector because of the transportation and storage services they offer. Enterprise Products Partners (NYSE: EPD) and Energy Transfer (NYSE: ET) are some of the biggest firms in the industry. Other prominent MLPs are TC Energy, Kinder Morgan, and Magellan Midstream Partners.

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Enterprise Products Partners vs Energy Transfer
Enterprise Products Partners vs Energy Transfer

Enterprise Products Partners vs Energy Transfer

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EPD and ET are two of the biggest players in the midstream industry. They are also highly popular among analysts, with most of them having buy ratings on the shares. MLPs are loved because they tend to do well in all periods.

According to Yahoo Finance, the average analysts target of Energy Transfer is $16.75, which is higher than the current $12.76. Similarly, the average target for Enterprise Products stock is $31.67, higher than the present $26.33. So, which of the two is a better investment?

Looking at their stock performance, Energy Transfer has been a better investment over the years. Its stock has returned ~85% in the past 10 years compared to Enterprise’s 64.64%. The same is true in 2023, where ET has jumped by 10% vs EPD’s 9.16%.

Most investors invest in MLPs because of their dividends. ET has a forward dividend yield of 9.56% compared to Enterprise’s 7.44%. In addition to a high dividend yield, Energy Transfer has a lower payout ratio of 71.5% compared to EPD’s 75.6%. The payout ratio is an important because it shows the percentage of net income that it pays in dividends. Energy Transfer wins in this regard.

Analysts believe that Enterprise’s dividends will rise when it completes ongoing projects, which aree valued at over $6 billion. Most of these projects will complete in the next few years and boost its EBITDA.

EPD vs ET valuation and growth

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Valuation is an important metric to consider because you want to invest in a company that is not overvalued. Enterprise Product Partners has a trailing and forward PE ratio of 10.55 and 10.16, respectively. On the other hand, Energy Transfer’s multiples are 9.13 and 8.18, respectively. While the margin is a bit tight, ET wins in this regard.

Financials are where Enterprise wins against ET. The most recent results showed that Enterprise’s revenue grew by 42.5% in the fourth quarter while Energy Transfer’s grew by 33%. EPD has a forward EBITDA growth of 4.50% vs ET’s -2.7%. 

These metrics explain why Energy Transfers recently decided to implement a large acquisition. The company is buying Lotus Midstream in a $1.45 billion deal. Lotus operates the Centurion Pipeline system, which are located in the most active areas of the Permian Basin.

Therefore, based on all these metrics, I believe that Energy Transfer is a better investment than Enterprise Products Partners. It is reasonably priced, has a strong balance sheet, and long track record of performance.

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