Energy Transfer's M&A Strategy In Focus Amid Sprawling Footprint, Balance Sheet Strength: Analyst's View

Mizuho analyst Gabriel Moreen reiterated a Buy rating on Energy Transfer LP ETraising the price target to $18 from $17.

ET plans to release earnings for the second quarter of 2023 on August 2, 2023, after the market closes.

After a substantial 1Q23 update, the analyst forecasts q/q moderation on account of 2Q23 seasonality, less-pronounced Waha gas discounts, and weaker processing margins.

Given ET's sprawling footprint and improved balance sheet, the analyst expects 'bolt-on M&A' to remain a cornerstone of ET's growth strategy.

In May, ET announced a ~$1.45 billion acquisition of Lotus Midstream consisting of $900 million cash and approximately 44.5 million ET units.

Moreen estimates that the deal carries a ~7x acquisition multiple and will represent ~$210 million/yr in incremental adj EBITDA ($105 million in 2H23).

Also Read: Energy Transfer Bolsters Permian Basin Footprint Via $1.45B Lotus Midstream Deal

In the quarter to be reported, ET may address several essential items during its update, particularly on Lake Charles LNG strategy following the DOE's appeal denial / new contract signings, the analyst notes. 

The company will also provide a clearer picture of near-term capex expectations and potentially a more nuanced perspective on how bolt-on M&A fits within ET's strategy.

Based on the above, Moreen raised the FY23 adj EBITDA estimate, but by a lesser amount than 1Q23 outperformance, to account for expected headwinds in the form of less marketing upside ('Intrastate') and weaker processing margins.

For 2Q23, the analyst sees adjusted EBITDA of $3.224 billion - slightly above the Street estimate of $3.208 billion.

Price Action: ET shares are trading higher by 1.08% to $13.11 on the last check Tuesday.

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorEquitiesNewsPrice TargetReiterationMarketsAnalyst RatingsTrading IdeasGeneralBriefsExpert Ideas
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...