ET: Cash Returns And Upcoming Distribution Growth Will Drive Future Upside

Key Takeaways

• Expanding pipeline and export infrastructure, alongside strong customer commitments, positions Energy Transfer to capture rising domestic and global energy demand with de-risked revenue streams.
  
• Proven success in growth projects and mergers enhances earnings visibility, margin improvement, and long-term upside as natural gas remains a key transitional energy source.
  
• Heavy reliance on large, long-term projects and fossil fuel demand faces execution, contracting, regulatory, and competitive risks, while energy transition trends threaten future utilization and margins.

Catalysts

Provides energy-related services in the United States.

• Energy Transfer is ramping up substantial investments in new natural gas pipelines (e.g., Desert Southwest, Hugh Brinson) and storage projects to address projected surges in U.S. power generation and data center demand, leading to higher future contracted volumes and fee-based revenues.
  
• The company's NGL export capacity expansions at the Nederland terminal and new pipeline loopings position it to benefit from increased U.S. hydrocarbon exports to international markets, supporting sustained throughput and export revenues as global energy demand rises.
  
• Recent long-term, investment-grade customer commitments on multi-billion-dollar projects de-risk cash flows and improve visibility into earnings growth, while the buildout of vertically integrated infrastructure (like Lake Charles LNG tied to ET pipelines) enhances both margins and return on invested capital.
  
• Secular resilience of natural gas as a bridge fuel, amid global decarbonization efforts, supports long-duration utilization rates for ET's infrastructure, especially as global and U.S. population growth continues to drive baseline energy demand.
  
• Aggressive organic growth project backlog (many expected to deliver mid-teen returns from 2026 onward) and a proven history of successful M&A provide strong forward visibility into distributable cash flow and earnings growth, likely supporting valuation re-rating over time.

Energy Transfer Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Energy Transfer's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.5% today to 6.7% in 3 years time.
• Analysts expect earnings to reach $6.7 billion (and earnings per share of $1.92) by about September 2028, up from $4.5 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 $4.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.9x on those 2028 earnings, up from 13.2x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.6x.
• Analysts expect the number of shares outstanding to grow by 0.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.57%, as per the Simply Wall St company report.

Energy Transfer Future Earnings Per Share Growth

Risks

• Energy Transfer is experiencing a weaker than expected growth in both Bakken and Permian crude oil and gas volumes, partly due to lower volumes, deferred completions, and curtailments, as well as unexpected cold weather impacts-posing risks to revenue and near-term earnings if these trends continue.
  
• The company's future growth relies heavily on large-scale, multi-billion-dollar organic projects (e.g., Desert Southwest and Hugh Brinson pipelines, Lake Charles LNG), which involve extended permitting/build periods and traditional midstream risk structures-elevating the risk of cost overruns, regulatory delays, and execution challenges that could negatively affect margins and cash flows.
  
• Energy Transfer's strategy is increasingly tied to new, long-term contractual commitments related to natural gas demand from data centers, gas-fired power, and international LNG; however, much of the incremental demand is not yet fully contracted, is subject to changing market conditions, and faces regulatory/permitting uncertainties, which could impact long-term revenue growth and project utilization rates.
  
• Intensifying NGL pipeline competition in the Permian and shifting optimization opportunities may pressure volumes and blending/storage margins for core NGL assets, while international relations and geopolitical events (e.g., the recent ethane export disruption with China) might hinder export growth, limiting revenue and EBITDA expansion.
  
• Although Energy Transfer is bullish on long-term hydrocarbon demand, secular trends such as the global acceleration of renewable energy adoption, decarbonization mandates, and enhanced ESG investor scrutiny threaten long-term fossil fuel infrastructure utilization, potentially leading to declining long-term throughput, elevated cost of capital, and compressed earnings and margin profiles.

Valuation

• The analysts have a consensus price target of $22.552 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 $25.0, 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 $99.8 billion, earnings will come to $6.7 billion, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 8.6%.
• Given the current share price of $17.17, the analyst price target of $22.55 is 23.9% 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.