Should You Buy, Sell or Hold ET Stock Ahead of Q2 Earnings?

The Zacks Consensus Estimate for ET’s second-quarter revenues is pegged at $31.09 billion, indicating a 61.57% increase from the year-ago reported figure. 

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The consensus estimate for earnings is pegged at 39 cents per unit. The Zacks Consensus Estimate for ET’s second-quarter earnings has moved up 5.41% in the past 60 days.

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What the Zacks Model Unveils

Our model does not conclusively predict an earnings beat for Energy Transfer this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you can see below.

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

ET’s Earnings ESP: Energy Transfer has an Earnings ESP of 0.00%.

Zacks Rank: Energy Transfer currently carries a Zacks Rank #3.

Stocks to Consider This Season

Here are some stocks in the same sector that have the combination of factors indicating an earnings beat this season.

Some companies in the same sector that also have the right combination of the two factors for an earnings beat this season are Calumet, Inc. CLMT, Western Midstream Partners WES and National Energy Services Reunited Corp. NESR. CLMT, WES and NESR have an Earnings ESP of +169.57%, +0.33% and +7.80%, respectively. CLMT and WES currently carry a Zacks Rank #2 each, and NESR sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Likely to Have Shaped ET’s Q2 Earnings

Fee-based contracts are estimated to contribute nearly 90% of Energy Transfer’s to-be-reported quarter. These largely fee-based arrangements offer stable and predictable revenue streams, which are expected to have supported the company’s second-quarter performance.

Strong NGL export volumes are also expected to support results. With an export capacity of approximately 1.4 million barrels per day, this segment is likely to have made a meaningful contribution to second-quarter performance.

Energy Transfer continues to benefit from its expansive pipeline network across major production basins and rising hydrocarbon output. Following higher natural gas, crude oil and NGL transportation volumes in the first quarter, this momentum is likely to have persisted in the second quarter.

In addition, Energy Transfer’s processing plants in the Permian Basin have been strengthening its ability to meet rising demand. Continued optimization and expansion of these facilities are likely to have supported the company’s second-quarter earnings.

ET Stock Trading at a Discount

Energy Transfer units are somewhat inexpensive on a relative basis, with its current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA TTM) being 10.31X compared with the industry average of 12.07X.

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ET Stock’s Price Performance

ET’s units have gained 1.4% in the past three months compared with the Zacks Oil and Gas Production Pipeline – MLB industry’s rise of 0.5%.

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Investment Thesis

Energy Transfer operates nearly 140,000 miles of pipelines and related infrastructure across 44 states, providing a strong platform to benefit from rising U.S. production of crude oil, natural gas and natural gas liquids.

Continued investments in pipeline and processing capacity are expected to reinforce the company’s position in the midstream sector. Its LNG export capabilities and growing domestic demand should also support operational and financial performance.

The partnership’s extensive and integrated asset network is well positioned to transport increasing U.S. hydrocarbon production to international markets. Contracted cash flows, disciplined capital spending and a diversified asset base should support sustainable earnings growth and long-term value creation.

Summing Up

Energy Transfer continues to capitalize on rising demand by efficiently utilizing its extensive U.S. energy infrastructure. Strategic acquisitions and ongoing organic expansion projects have further enhanced the company’s operational capabilities and growth prospects.

The company’s long-term outlook remains favorable, supported by its diversified geographic presence and continued efforts to expand operations through targeted investments and acquisitions.

Earnings estimates for the upcoming quarter have increased over the past 60 days. Energy Transfer’s shares have also outperformed the industry over the past three months and currently trade at a discount to peers. This attractive valuation, coupled with rising global demand for cleaner-burning fuels, may worth a consideration for investors.

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This article originally published on Zacks Investment Research (zacks.com).

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