In light of the forecast, 2025 is expected to be another prosperous year for the soaring and rewarding Energy Transfer sector.
In light of the forecast, 2025 is expected to be another prosperous year for the soaring and rewarding Energy Transfer sector.
This year has been a fantastic one for Energy Transfer (ET), witnessing a notable surge of approximately 40% in its units. This outstanding performance surpasses the leaps made by the S&P 500, which saw a jump exceeding 25%. Various factors have contributed to this impressive rise, including an earnings boost due to acquisition-driven growth and anticipation for future growth prospects. Despite this significant rise, Energy Transfer's units continue to offer a yield of almost 7%, significantly surpassing the 1.2% yield offered by the S&P 500.
The optimistic outlook for 2025 is anchored by a few key elements.
Notable growth on the horizon
Energy Transfer is projected to generate between $15.3 billion and $15.5 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for this year. This represents a 12% increase at the midpoint, compared to 2023's earnings. The company has enjoyed significant benefits from acquisitions like Lotus Midstream and Crestwood Equity Partners last year, as well as WTG Midstream in July. Additionally, it has completed several organic capital projects, which have contributed to record-breaking volumes across its various businesses during the third quarter.
While the pace of growth may not be as rapid in 2024 due to the absence of the same level of support from acquisitions like Lotus and Crestwood, Energy Transfer still maintains a strong momentum heading into 2025.
One significant factor driving this optimistic view is the recent acquisition of WTG Midstream. The company anticipates that this acquisition will add around $0.04 per unit to its distributable cash flow in 2024, which is projected to increase to $0.07 per unit by 2027. This represents a substantial increase, especially considering that the MLP is currently growing its high-yielding distribution at a rate of $0.01 per unit annually, representing over 3% growth each year.
Moreover, Energy Transfer has several organic expansion projects that have recently entered commercial service or will do so within the following year. For instance, it has recently completed an expansion of its Orla East processing plant in the Permian Basin and a 30-mile pipeline to transport additional oil from the Permian Basin to a major regional storage hub. By the end of this year, it expects to complete the initial phase of the Sabina 2 Pipeline Conversion project. In 2024, it expects to complete several additional projects, including Red Lake IV processing plant, the relocation of its Badger processing Plant, the initial phases of its Nederland Flexport expansion project, and some of its gas-fired power plant projects. These projects will provide extra sources of incremental cash flow upon completion.
Further potential catalysts in store
These upcoming project completions and the highly accretive WTG Midstream acquisition position Energy Transfer favorably for another prosperous year in 2025. The MLP is expected to maintain a healthy growth rate in adjusted EBITDA, enabling it to continue steadily enhancing its distribution.
Beyond these projects, several other potential upside catalysts could provide additional fuel for the MLP's upward trajectory in 2025. A noteworthy catalyst is the possibility of making another accretive acquisition. Energy Transfer is considered a consolidator in the midstream sector, with a strong financial position; its leverage is currently moving toward the lower half of its target range. This gives it ample financial flexibility to pursue a suitable acquisition opportunity as they emerge in 2025.
The company is likely to continue securing additional organic expansion projects. Recently, it approved the $2.7 billion Hugh Brinson Pipeline project, which is slated to enter commercial service in 2026. It has several other projects in the pipeline, including Blue Marlin, Lake Charles LNG, blue ammonia hubs, and carbon capture and sequestration projects. It's close to finally approving Lake Charles LNG, which has faced numerous delays in the past. Meanwhile, AI has the potential to fuel several new natural gas-related infrastructure projects for Energy Transfer in the coming years.
The company's growing cash flow could enable it to return even more value to investors. Energy Transfer is currently increasing its distribution by $0.01 per unit annually, which is toward the lower end of its 3% to 5% annual target range. It may accelerate its growth rate, particularly in light of the WTG Midstream deal's accretion. In addition, the MLP could begin using some of its excess free cash flow to repurchase its units once its leverage ratio moves to the lower end of its range. Despite this year's rally, its units still trade at an appealing valuation.
Preparing for a prosperous 2025
Energy Transfer enters 2025 with a strong wave of momentum, following the completion of the WTG Midstream deal and a few additional organic expansion projects. The company may further strengthen its already robust growth profile by securing additional expansion projects and maintaining its consolidation strategy. Additionally, it may begin returning even more cash to investors in 2025. This means another promising year lies ahead for Energy Transfer and its investors.
In light of Energy Transfer's projected earnings growth and successful acquisitions, such as WTG Midstream, investors may consider allocating funds for potential investing opportunities in the finance sector. Furthermore, the company's focus on organic expansion projects and potential for accretive acquisitions in 2025 could yield attractive returns, making it a strong consideration for individuals interested in money management and wealth growth through investing.