Flexport And Lake Charles LNG Will Transform Future Operations

Key Takeaways

• Diversified growth projects like the Flexport NGL and new processing plants promise increased revenue and cash flow in upcoming years.
  
• Strategic projects in LNG and potential acquisitions strengthen market presence, aiming to boost long-term earnings and cash flow.
  
• Higher expenses, unresolved litigation, and volatility in commodity prices may pressure profitability, while reliance on large capital projects and increased LNG competition pose execution risks.

Catalysts

Provides energy-related services in the United States.

• Energy Transfer's extensive plans for organic growth, including $5 billion in capital projects for 2025, aim to drive mid-teen returns, positioning the company for significant earnings growth in 2026 and 2027, thus impacting future revenue and earnings positively.
  
• Major growth projects such as the Flexport NGL export expansion and multiple processing plant expansions in the Permian Basin are expected to come online in 2025 and 2026, providing substantial incremental downstream benefits and cash flow conversion, which should enhance future revenues.
  
• The Lake Charles LNG project, progressing towards a final investment decision by the end of the year, is expected to add substantial revenue and earnings through strategic partnerships and increased export capacity, catering to rising global LNG demand.
  
• Diversification into data centers and power generation projects with minimal capital requirements but high margin opportunities could rapidly increase revenues and net margins from Energy Transfer's extensive natural gas infrastructure.
  
• The potential acquisition of Parkland Corporation by Sunoco, an Energy Transfer portfolio company, promises to enhance market presence and potentially increase distributions to Energy Transfer, thereby improving earnings and cash flow.

Energy Transfer Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Energy Transfer's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.3% today to 6.0% in 3 years time.
• Analysts expect earnings to reach $5.8 billion (and earnings per share of $1.64) by about May 2028, up from $4.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $7.6 billion in earnings, and the most bearish expecting $4.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.8x on those 2028 earnings, up from 12.3x today. This future PE is greater than the current PE for the US Oil and Gas industry at 11.3x.
• Analysts expect the number of shares outstanding to grow by 1.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.58%, as per the Simply Wall St company report.

Energy Transfer Future Earnings Per Share Growth

Risks

• Higher operating expenses and lower blending margins, especially in the NGL and refined products segment compared to the previous year, could pressure net margins and impact overall profitability.
  
• Litigation in the intrastate segment involving approximately $285 million remains unresolved, which poses a risk to earnings if not settled favorably or timely.
  
• The hesitancy in the market due to volatility in commodity prices, such as natural gas and oil, and a slowdown in drilling activity could impact revenues, especially in segments dependent heavily on volume throughput.
  
• The dependence on large capital projects for future growth, with significant portions of these projects expected to ramp up earnings in 2026 and 2027, could delay revenue generation and present execution risks if not completed on time or within budget.
  
• The increased competition in the LNG market, both domestically and internationally, and the requirement for securing new partners and customers to close the capacity in their projects, may affect future revenue and pricing power if not effectively managed.

Valuation

• The analysts have a consensus price target of $22.889 for Energy Transfer based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.0, and the most bearish reporting a price target of just $20.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $97.0 billion, earnings will come to $5.8 billion, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $15.81, the analyst price target of $22.89 is 30.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.