Is Energy Transfer stock a buy after the Crestwood buyout?

By:
on Aug 17, 2023
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  • Energy Transfer share price has outperformed the VDE ETF over years.
  • It agreed to acquire Crestwood Energy Partners in a $7.3 billion deal.
  • It is a quality company with a stronger dividend yield than the market.

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Energy Transfer (NYSE: ET) stock price has been a shining star in the energy market for years. The shares have consistently outperformed popular energy stocks like ExxonMobil, Chevron, and Shell. They have soared by over 600% since 2006 while the Vanguard Energy ETF (VDE) has risen by ~150% in the same period.

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energy transfer stock

Energy Transfer stock vs VDE, Chevron, ExxonMobil

The best energy company?

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Energy Transfer is an energy company that most Americans have never heard about. Unlike Exxon and Chevron, it does not have a consumer-facing business in the country. Yet, all Americans have indirectly used its products.

Energy Transfer is involved in gathering and transporting natural gas, crude oil, and other energy products in the US. It does this using its pipelines, which are spread across the country. It has 5,600 miles of NGL pipelines and 11,500 miles of crude oil pipelines.

Energy Transfer also owns a large stake in Sunoco and USAC. Sunoco is involved in distribution of motor fuels while USAC provides gas compression services. Most importantly, ET uses a partnership model, which is often more tax-friendly. 

MLPs distributions are a return of capital, meaning they are tax-deferred. As a result, when people sell their shares, they pay taxes based on the difference of the sale price and the adjusted basis. According to its website, Energy Transfer does not pay any federal taxes.

Energy Transfer has grown its business both organically and through strategic acquisitions. In 2022, it acquired Woodford Express and interests in Caliche Coastal Holdings. And this week, it acquired Crestwood Equity Partners in a $7.1 billion all stock deal.

This acquisition will give it more exposure to the Willston, Delaware, and Powder River bains. I believe that the buyout makes sense since Crestwood made over $6 billion in revenue in 2022.

Energy Transfer’s total revenue jumped from over $53 billion in 2018 to over $89 billion in 2022. In this period, its net profit has spiked from $1.7 billion to $4.7 billion.

Why Energy Transfer stock is a good buy

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There are other potential catalysts for Energy Transfer stock. First, the company has a strong and safe dividend yield, making it ideal for income investors. It has a forward dividend yield of 9.45%, which is a higher return than the SPY return of 1.47%. It is also better than what American bond yields are providing.

Second, Energy Transfer is also quite affordable. The company has a trailing PE multiple of 10.4 and a forward PE of 8.76. These multiples are lower than other companies like Kinder Morgan, The Williams Company, and Enterprise Product Partners. In a recent statement, ET’s CFO said:

“At the current unit price levels, we believe Energy Transfer has significant unit price appreciation potential based on a number of valuation metrics including the research analyst price target median of approximately $17 per unit.”

Further, I believe that Energy Transfer will thrive since its energy prices have stabilized recently. Brent crude was trading at $83.5 while West Texas Intermediate was at $79. Natural gas prices have stabilized. The biggest challenge for the company is its huge $44 billion debt load.

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