Is Energy Transfer Stock Going to $22? 1 Wall Street Analyst Thinks So.

Investment bank UBS recently adjusted its price target on midstream giant Energy Transfer (NYSE: ET). While it trimmed the target from $23 per unit to $22, it maintained its buy rating. That slightly lowered price target still implies that the master limited partnership (MLP) has a massive upside. The revised target is more than 50% above the current unit price.

The investment bank made the tweak following Energy Transfer’s fourth-quarter earnings report. Energy Transfer set several quarterly operational records and expects strong earnings growth in 2024. Here’s a look at whether the MLP has the fuel to rally more than 50% this year.

A bottom-of-the-barrel valuation

Energy Transfer is coming off a strong year in 2023. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 5% last year to $13.7 billion. That was $100 million higher than the top end of its guidance range. It puts the MLP’s valuation at around 8 times its EBITDA, near the bottom of its peer group:

A slide showing Energy Transfer’s value proposition.

There’s no discernable reason for its discounted valuation. Energy Transfer is growing at a solid rate (it expects its adjusted EBITDA to rise by around 7% at the midpoint of its 2024 guidance range). It also has a much-improved balance sheet (it sees its leverage ratio in the lower half of its 4.0-4.5 times target range this year). Those factors fuel its expectation of increasing its already high-yielding distribution (currently 8.7%) by 3% to 5% annually.

The fuel to potentially produce high-octane total returns

Given Energy Transfer’s discounted valuation, the $22 price target seems attainable since that would put its valuation closer to its peers. Add its growing distribution to its upside potential, and Energy Transfer could produce high-octane total returns from here. That makes it a compelling investment opportunity for those seeking strong income and price appreciation potential.

SPONSORED:

Should you invest $1,000 in Energy Transfer right now?

Before you buy stock in Energy Transfer, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Energy Transfer wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

See the 10 stocks

*Stock Advisor returns as of February 12, 2024

Matt DiLallo has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.