Does Energy Transfer’s Expansion Pipeline Justify Its Big Gap to Estimated Fair Value?

• Wondering if Energy Transfer at around $16.56 is a bargain or a value trap? You are not alone, and today we will break down what the numbers really say.
• Despite a choppy recent run with the stock down 1.4% over the last week, 2.6% over the past month and 16.0% year to date, long term holders are still sitting on gains of 82.3% over 3 years and 263.5% over 5 years.
• Recent headlines have focused on Energy Transfer expanding its midstream footprint through new pipeline and export projects, alongside ongoing regulatory scrutiny that tends to follow large energy infrastructure builds. Together, these developments help explain why the market is constantly reassessing both the company’s growth runway and its risk profile.
• On our valuation framework Energy Transfer scores a 6/6, indicating it screens as undervalued across all six of our checks. Next we will walk through those methods one by one while also pointing you toward an additional way to think about fair value at the end of this article.

Find out why Energy Transfer's -6.4% return over the last year is lagging behind its peers.

Approach 1: Energy Transfer Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth by projecting the cash it can generate in the future and then discounting those cash flows back to today in $ terms.

For Energy Transfer, the model starts with last twelve months free cash flow of about $6.7 billion and uses analyst forecasts for the next few years. It then extends those trends over a longer horizon using a 2 stage Free Cash Flow to Equity approach. By 2029, free cash flow is projected to reach roughly $7.8 billion, with further moderate growth out to 2035 as the company expands its midstream network while keeping capital discipline in mind.

When these projected cash flows are discounted back to today, the DCF model arrives at an intrinsic value of around $43.58 per share. Compared with the recent share price near $16.56, this implies Energy Transfer is trading at about a 62.0% discount to its estimated fair value, suggesting a wide margin of safety for long term investors.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Energy Transfer is undervalued by 62.0%. Track this in your watchlist or portfolio, or discover 908 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Energy Transfer.

Approach 2: Energy Transfer Price vs Earnings

For consistently profitable companies like Energy Transfer, the price to earnings, or PE, ratio is a useful way to gauge how much investors are paying for each dollar of current profits. A higher PE typically reflects stronger growth expectations or lower perceived risk, while a lower PE can signal slower growth, higher risk or a potential bargain if the market is too pessimistic.

Energy Transfer currently trades on a PE of about 13.18x. That is roughly in line with the broader Oil and Gas industry average of 13.28x, but meaningfully below the 19.12x average of its peer group. To move beyond these broad comparisons, Simply Wall St uses a proprietary Fair Ratio, which estimates what PE a stock deserves given its earnings growth outlook, profitability, industry, size and risk profile. This Fair Ratio for Energy Transfer is 21.83x, implying that, based on its fundamentals, the market would normally assign a much higher multiple than it does today.

Because the current PE of 13.18x is well below the 21.83x Fair Ratio, this approach suggests Energy Transfer shares are undervalued on an earnings basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1445 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Energy Transfer Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. This is a simple way for you to write the story behind your numbers by linking your assumptions for Energy Transfer’s future revenue, earnings and margins to a financial forecast, a fair value, and ultimately a clear view on how attractive the stock may be based on how that fair value compares to today’s price.

On Simply Wall St’s Community page, millions of investors use Narratives as an easy, accessible tool that turns their perspective on a company into a living valuation model. It automatically updates when fresh information like earnings releases, project news or regulatory developments comes in, so their fair value estimate and conviction stay current without needing to rebuild a spreadsheet from scratch.

For example, one Narrative on Energy Transfer might assume robust 7 to 8% annual revenue growth, improving margins above 6% and a future PE closer to 15x, leading to a fair value around $25 and a view that the stock could be attractive at today’s price. A more cautious Narrative might factor in slower growth, margin pressure and a lower multiple that supports a fair value nearer $20 and a preference to wait for a lower entry price.

Do you think there's more to the story for Energy Transfer? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com