Company Reports

We think AI and data center demand offers a potentially sizable growth opportunity across our US E&P and US & Canadian midstream coverage list. We consider Chart Industries, Energy Transfer, Enbridge, Kinder Morgan, and TC Energy as undervalued ways to play this trend. Cheniere Energy and Williams are more fairly valued, while Antero, Range, and likely EQT (not covered) are obvious direct opportunities and appear expensive.

Energy Transfer’s first-quarter earnings were generally solid, thanks to healthy volumes and an incremental $250 million marketing contribution from weather-related volatility. Overall EBITDA improved 13% year over year to $3.88 billion. The recent acquisitions of Crestwood and Lotus were the primary contributors. Even excluding their contributions, crude oil volumes were up 14% year over year, which we consider a strong performance. After updating our model, our $21 fair value estimate and no-moat rating remain unchanged.

Data center and AI demand is coming into focus for Energy Transfer. Several years ago, the partnership began to focus on connecting its assets to power plants located within 10 miles of its intra-state pipelines. Now, Energy Transfer believes it is connected to about 55%-60% of the power plants in Texas, either directly or indirectly. As a result, management believes it is well positioned to benefit from perhaps 8 billion cubic feet per day of new data center demand, likely by 2030, particularly as Dallas is emerging as a key data center hub.

After updating our model for fourth-quarter earnings and rolling our model, we are increasing our fair value estimate to $21 from $17.50, reflecting higher levels of free cash flow. Our fair value estimate implies a 2024 EV/EBITDA multiple of 8.2 times and a 2024 distribution yield of 6%.

In the past decade, Energy Transfer has built itself into one of the largest midstream energy companies with an enviable network of natural gas infrastructure, primarily in Texas and the U.S. midcontinent region. Energy Transfer has both contributed to and benefited from the U.S. shale oil and gas boom.

Energy Transfer’s fourth-quarter earnings and full-year results were solid, in our view. 2023 EBITDA was $13.7 billion, up 5% over 2022's level, and a touch higher than our $13.6 billion forecast, largely due to incremental marketing contributions, in our view. 2024 guidance is initially lower than our forecast, however, we expect to maintain our $17.50 fair value estimate and no-moat rating.

In the past decade, Energy Transfer has built itself into one of the largest midstream energy companies with an enviable network of natural gas infrastructure, primarily in Texas and the U.S. midcontinent region. Energy Transfer has both contributed to and benefited from the U.S. shale oil and gas boom.

Energy Transfer's third-quarter results were good, and with the Crestwood deal expected to close Nov. 3, the year 2024 is already expected to have healthy growth. EBITDA in 2023, factoring in about $200 million of Crestwood contributions, is now expected to be about $13.6 billion. The guidance implies about $13.4 billion in contributions from Energy Transfer, roughly $100 million more than a quarter ago, so Energy Transfer is outperforming as well. EBITDA in 2024 will likely be around $15 billion, after about $870 million in Crestwood contributions. We expect to tweak our forecasts, but our fair value estimate of $17.50 and no-moat rating will be unchanged.

The U.S. Department of Energy, or DOE, recently announced $7 billion in funding for several key hydrogen hubs around the United States. These hubs are designed to help the U.S. administration achieve its goal of 10 million tons per year of hydrogen production by 2030. The effort was extremely competitive as nearly 80 bids were submitted in November 2022, before being whittled down to the seven eventual winners. The $7 billion for funding the hubs will now enter a negotiation stage. Collectively, the hubs are expected to produce about 3 million tons of hydrogen per year and eliminate 25 million tons of carbon dioxide emissions annually. None of our fair value estimates or moat ratings are affected.

Energy Transfer’s $7.1 billion deal to acquire Crestwood Equity Partners looks like a decidedly mixed transaction that will ultimately be close to value neutral. Crestwood’s assets are primarily gathering and processing assets located in the Williston, Delaware, and Powder River basins, with about 3.4 billion cubic feet per day of capacity. It should close by the end of 2023. The deal follows earlier deals from peers Enterprise Products Partners and Targa acquiring similar assets (Navitas, Lucid) in the Permian, and considering the respective asset portfolios, we think Energy Transfer’s peers may have acquired better-quality assets that are more closely tied to current and future drilling activity in the Permian.

In the past decade, Energy Transfer has built itself into one of the largest midstream energy companies with an enviable network of natural gas infrastructure, primarily in Texas and the U.S. midcontinent region. Energy Transfer has both contributed to and benefited from the U.S. shale oil and gas boom.

Energy Transfer’s second-quarter results met our expectations, and the partnership reaffirmed the midpoint of its 2023 EBITDA at $13.3 billion, matching our expectations. After updating our model, we will maintain our $17.50 fair value estimate and no-moat rating. Second-quarter EBITDA fell to $3.1 billion from $3.2 billion last year. Volume growth across its portfolio was more than offset by weaker gas and natural gas liquids pricing, which were down 70% and 45%, respectively, from last year’s levels. Energy Transfer remains more exposed than most within our U.S. midstream coverage to oil and gas price volatility given its propensity to rely on marketing spreads for earnings, so we would expect more of the same in the second half of 2023.

In the past decade, Energy Transfer has built itself into one of the largest midstream energy companies with an enviable network of natural gas infrastructure, primarily in Texas and the U.S. midcontinent region. Energy Transfer has both contributed to and benefited from the U.S. shale oil and gas boom.

Energy Transfer’s first-quarter results were healthy, and its raised full-year forecast is generally in line with ours. The partnership boosted its 2023 EBITDA to a midpoint of $13.25 billion compared with $13.1 billion previously, mainly reflecting the addition of the just-closed Lotus deal. This is essentially in line with our $13.27 billion forecast. Growth capital spending for 2023 was also increased modestly to $2 billion from last quarter’s midpoint guidance of $1.7 billion, again mainly reflecting Lotus, and already incorporated in our model. We expect to maintain our $17.50 per unit fair value estimate and no-moat rating.

Energy Transfer has agreed to acquire Lotus Midstream for $1.45 billion in cash and units. Lotus provides oil gathering, storage, and long-haul transportation out of the Permian Basin, and Energy Transfer will also obtain Lotus’ 5% interest in the Wink to Webster pipeline.

In the past decade, Energy Transfer has built itself into one of the largest midstream energy companies with an enviable network of natural gas infrastructure, primarily in Texas and the U.S. midcontinent region. Energy Transfer has both contributed to and benefited from the U.S. shale oil and gas boom.

Energy Transfer’s fourth-quarter and full-year results met our expectations, including full-year EBITDA of $13.1 billion compared with our modeled $12.9 billion. We believe the upside is due primarily to capturing wider marketing spreads. 2023 guidance is set at a midpoint of $13.1 billion, equivalent to our $13.1 billion forecast.

In the past decade, Energy Transfer has built itself into one of the largest midstream energy companies with an enviable network of natural gas infrastructure, primarily in Texas and the U.S. midcontinent region. Energy Transfer has both contributed to and benefited from the U.S. shale oil and gas boom.

Energy Transfer’s third-quarter results were strong as expected, and the partnership boosted 2022 EBITDA guidance to a midpoint of $12.9 billion, matching our own estimate. Similar to prior quarters, Energy Transfer’s marketing and optimization business continues to capture wide spreads, boosting results. Higher volumes across gas transportation, gathering, and natural gas liquids exports also contributed, helped by the recently completed Enable deal. Energy Transfer continues to acquire assets, with the Woodford Express midcontinent gas gathering system for $485 million added in August. After updating our model for the latest results, we will maintain our $17.50 fair value estimate and no-moat rating.

In the past decade, Energy Transfer has built itself into one of the largest midstream energy companies with an enviable network of natural gas infrastructure, primarily in Texas and the U.S. midcontinent region.