Energy Transfer Raises Guidance, But Stock Lower On Revenue Miss

Key Points

• Shares of Energy Transfer haven't gotten traction since the company's third-quarter report Tuesday, despite raising full-year guidance. 
• When boosting its forecast, the company cited strength from a recent acquisition. 
• Analysts have a "buy" rating on the stock and see a potential upside of 21% in the next 12 to 18 months. 

Energy Transfer NYSE: ET didn’t get any traction after its third-quarter earnings report Tuesday, although at least part of its decline was due to broad market action. Shares gapped down at the open Thursday, but about half an hour into the session were moving higher from earlier lows, but still seeking direction.  

As a group, stocks in the liquid natural gas industry have been performing well in recent months. 

For example, fellow large-cap Cheniere Energy NYSE: LNG posted four months in a row of price gains, although shares gapped lower Thursday morning, following the company’s surprised Wall Street with a quarterly loss, due to special situations involving derivatives and legal settlements. However, Cheniere said it delivered higher volumes of liquid natural gas. This and other positive developments offset the bad news.

Dallas-based Energy Transfer specializes in midstream transportation, liquid transportation and storage for natural gas. 

Energy Transfer reported third-quarter net income of $1.01 billion, or $0.30 per share, adjusted for one-time costs and gains. That’s exactly what Wall Street had anticipated, after adjustments. Revenue was $22.94 billion, which came in below views, as you can see using MarketBeat earnings and sales data for the company.  

With the market always looking ahead, you’d expect that an increased income forecast would give the stock a boost. However, a day of broad-market declines, dominated by the Federal Reserve’s 75-basis-point interest-rate increase, was too much for a mixed earnings report to overcome. 

Boosted Full-Year Guidance

The company increased earnings guidance for the third time this year, citing the strength of an acquisition, along with robust production and high demand for natural gas.

It now expects adjusted earnings before interest, taxes, depreciation, and amortization for the full year to come in between $12.8 billion and $13.0 billion, above previous guidance calling for a range between $12.6 billion and $12.8 billion. 

In its report, the company specifically mentioned that transported volumes increased primarily due to the recent acquisition of the Enable Oklahoma Intrastate Transmission system. That deal was completed in December 2021. 

The acquisition significantly strengthened Energy Transfer’s midstream and gas transportation systems by adding Enable’s natural gas gathering and processing assets in the Anadarko Basin in Oklahoma, as well as pipelines in Oklahoma and surrounding states. It also boosted Energy Transfer’s gas gathering and processing assets in the Arkoma basin across Oklahoma and Arkansas, as well as in the Haynesville Shale in East Texas and North Louisiana.

In the third-quarter report, Energy Transfer also cited increased production in the Haynesville Shale. 

Energy Transfer is still using a growth-through-acquisition strategy. In September, it completed the acquisition of Woodford Express, a Mid-Continent gas gathering, and processing system, for approximately $485 million. 

Strong Returns In Recent Months

Despite the company’s disappointing performance following its earnings report, it still boasts strong recent returns, with a three-month gain of 11.71% and a year-to-date gain of 57.53%. 

With Wednesday’s pullback, Energy Transfer found support just above its 10-day moving average. When a stock sees a selloff but gets moving-average support, that’s a sign that big investors aren’t selling everything. However, the stock gapped down Thursday, along with the broader market, driven largely by continued concerns about the Federal Reserve’s 

Since May, the stock repeatedly hit resistance just below $12.50, but managed to rally as high as $12.95 on Tuesday before pulling back to finish the session lower. It cleared a short consolidation in late October, following the company’s announcement that it had increased its quarterly dividend by 15.2%, to $0.265 per share. 

MarketBeat dividend data show a current yield of 7.44%. 

Analysts have a “buy”rating on the stock with a price target of $15, representing a potential upside of 21.36%. With the broad market once again selling off, it’s wise to use caution before making any purchases.