Is it worthwhile to purchase Energy Transfer before it surpasses $18?
In the ever-evolving landscape of the energy sector, Energy Transfer (ET) has been making headlines for both its struggles and its potential for growth. With a 21% stake in Sunoco, the company is poised to reap benefits from this deal, but other factors have contributed to a slump in its unit price in 2024.
High debt levels, growing ESG concerns, intense competition, dividend sustainability, and market conditions have likely played a role in the fluctuations of Energy Transfer's stock performance. Despite these challenges, the company's growth prospects, past performance, and analyst predictions make it an intriguing investment opportunity for the future.
Energy Transfer's adjusted EBITDA is expected to grow as the macro environment stabilises from 2024 to 2027, suggesting potential for long-term growth. The company has shown strong growth over the past five years, with its stock price rallying 155% and delivering a total return of 293%. As of June 2025, the average analyst rating for Energy Transfer stock was a "Strong Buy," with a 12-month price target of $22.58.
However, investors should carefully consider the ongoing challenges faced by the company, including high debt levels and ESG concerns, as well as broader market conditions. Energy Transfer currently trades at the second-lowest valuation in its peer group, and its units have cooled off this year, with a decrease of nearly 10%.
The company's affiliate Sunoco recently agreed to buy Parkland for $9.1 billion, a deal expected to close later this year. This acquisition is expected to boost Sunoco's cash flow per unit by more than 10%. Energy Transfer is also investing $5 billion into organic expansion projects this year, a $2 billion increase from last year.
Despite not securing any major new expansion projects or needle-moving acquisitions so far this year, Energy Transfer is working on many expansion opportunities, which it could approve over the coming months. The company secured six major growth projects last year as it began to capitalise on an uptick in demand for natural gas. The majority of the earnings growth from these projects is expected to significantly ramp up in 2026 and 2027, with the expansion projects starting to enter service over the second half of this year through the end of next year.
One of the biggest projects was the $2.7 billion Hugh Brinson natural gas pipeline, set to begin service at the end of next year. This pipeline, along with other expansion projects, could contribute to Energy Transfer's earnings boost and potential for growth in the coming years.
In conclusion, while Energy Transfer faces challenges that contributed to its unit price fluctuations in 2024, its growth prospects and past performance suggest it could be a viable investment opportunity for 2026 and 2027. However, investors should carefully weigh these factors against the company's debt, ESG concerns, and competitive landscape in the midstream sector.
- The ongoing challenges in the midstream industry, such as high debt levels, growing ESG concerns, and intense competition, are factors that investors should consider while evaluating Energy Transfer as an investment opportunity in 2026 and 2027.
- Energy Transfer's growth prospects are promising, with its adjusted EBITDA expected to grow as the macro environment stabilizes from 2024 to 2027, and potential earnings growth from major expansion projects entering service over the next two years.
- The energy sector giant is investing $5 billion into organic expansion projects this year, a significant increase from last year's investment, which could contribute to its long-term growth and financial stability, particularly with key projects like the Hugh Brinson natural gas pipeline set to begin service by the end of 2023.
