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 ET, raising 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.