Energy Transfer LP (ET) and Enterprise Products Partners L.P. (EPD) are two prominent midstream oil and gas industry players. ET in Dallas, Tex., owns and operates a portfolio of energy assets, including natural gas midstream and intrastate transportation and storage, interstate natural gas transportation and storage, crude oil, natural gas liquids (NGL) and refined products transportation, terminal services and acquisition and marketing activities, as well as NGL storage and fractionation services. EPD in Houston, Tex., provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. It also operates refined products pipelines and terminals, ethylene export terminals and provides refined products marketing and marine transportation services.
With the resumption of economic and industrial activities, rising demand for oil and natural gas and controlled supply from OPEC+ led to high energy prices last year. After exhibiting some stability earlier this year, escalating sanctions on Russia precipitated a significant surge in oil prices due to supply chain disruptions. As a result, the overall energy sector is thriving.
Furthermore, with the government increasingly focusing on domestic production, rising demand and high prices should benefit midstream companies with an established network of pipelines and terminals. Investor interest in this space is evident from the USCF Midstream Energy Income Fund’s (UMI) 24.8% gains year-to-date versus the SPDR S&P 500 Trust ETF’s (SPY) 7.8% loss. So, both ET and EPD should benefit. While EPD shares gained 21.7% year-to-date, ET has surged 41.2%. ET is a clear winner with 18.7% gains over the past month versus EPD’s 10.8% returns. But which of these stocks is a better pick now? Let’s find out.
On March 29, 2022, China-based energy company ENN Group’s ENN Natural Gas and ENN Energy Holdings Limited entered LNG Sale and Purchase Agreements (SPAs) with ET’s Energy Transfer LNG Export, LLC (ET LNG) subsidiary related to its Lake Charles LNG project. ET LNG is expected to supply 1.8 million tonnes of LNG to ENN NG and 0.9 million tonnes of LNG to ENN Energy per annum on a free-on-board (FOB) basis. The execution of these two SPAs represents a significant event in moving the Lake Charles LNG project towards a positive final investment decision and retaining operatorship of the liquefaction facility.
On Feb. 17, 2022, one of EPD’s affiliates completed the previously announced $3.25 billion acquisition of Navitas Midstream Partners, LLC, a producer-focused midstream company engaged in the gathering, fractionation, and pipeline transportation of natural gas, NGLs, condensates, and crude oil. This acquisition gives EPD a foothold in natural gas gathering, treating, and processing in the core of the Midland Basin of the Permian.
Recent Financial Results
ET’s revenues for its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, increased 85.9% year-over-year to $18.66 billion. The company’s operating income came in at $1.69 billion, indicating a 26.1% rise from the year-ago period. Its net income was $1.23 billion, up 47.8% from the prior-year period. ET’s EPS grew 52.6% year-over-year to $0.29. As of December 31, 2021, the company had $336 million in cash and cash equivalents.
For its fiscal 2021 fourth quarter, ended Dec.31, 2021, EPD’s revenues increased 61.4% year-over-year to $11.37 billion. The company’s operating income came in at $1.40 billion, indicating a 98.2% year-over-year improvement. While its net income increased 191% year-over-year to $1.07 billion, its EPS grew 213.3% to $0.47. As of Dec. 31, 2021, the company had $2.82 billion in cash and cash equivalents.
Past and Expected Financial Performance
Over the past three years, ET’s revenue, EBITDA, and total assets have increased at CAGRs of 7.6%, 13.3%, and 6.3%, respectively.
ET’s EPS is expected to fall 29.1% year-over-year in its fiscal year 2022, ending Dec. 31, 2022, and rise 11.2% in fiscal 2023. Its revenue is expected to grow 12.5% in its fiscal 2022 and decline 0.9% in fiscal 2023. Analysts expect the company’s EPS to decline at a 12% rate per annum over the next five years.
EPD’s revenue, EBITDA, and total assets have decreased at CAGRs of 3.8%, 5.2%, and 5.8%, respectively, over the past three years.
Analysts expect EPD’s EPS to grow 6.7% year-over-year in its fiscal 2022, ending Dec. 31, 2022, and 6.2% in fiscal 2023. Its revenue is expected to grow 8.5% year-over-year in fiscal 2022 and 2.8% in fiscal 2023. Analysts expect the company’s EPS to grow at a 10.2% rate per annum over the next five years.
In terms of non-GAAP forward PEG, EPD is currently trading at 3.41x, which is 53.6% higher than ET’s 2.22x. In terms of forward EV/Sales, ET’s 1.33x compares with EPD’s 1.85x.
EPD’s trailing-12-month revenue is almost 1.7 times ET’s. Also, EPD is more profitable, with an 11.4% net income margin versus ET’s 8.1%.
Furthermore, EPD’s EBITDA margin and levered free cash flow margin of 19.3% and 9.6%, respectively, compare with ET’s 18.7% and 7.8%.
While EPD has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, ET has an overall C grade, which equates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both EPD and ET have A grades for Momentum, consistent with their impressive price performance. EPD gained 10.8% in price over the past month, while ET surged 18.7%.
EPD has a B grade for Sentiment, consistent with analysts’ expectations of a solid increase in earnings. EPD’s EPS is expected to grow 6.7% year-over-year to $2.24 for its fiscal year 2022, ending Dec. 31, 2022. ET’s C grade for Sentiment is in sync with its lower earnings estimates. The $1.34 consensus estimate for ET’s fiscal 2022 EPS represents a 29.1% decline from the prior-year period.
Among the 35 stocks in the A-rated MLPs – Oil & Gas industry, EPD is ranked #10.
ET is ranked #61 of 96 stocks in the B-rated Energy – Oil & Gas industry.
Beyond what we have stated above, our POWR Ratings system has also graded ET and EPD for Value, Stability, Quality, and Growth. Get all ET ratings here. Also, click here to see the additional POWR Ratings for EPD.
Rising oil prices should help midstream companies ET and EPD generate higher revenues. However, its relatively higher profitability we think makes EPD a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Ratings of Buy or Strong Buy. Click here to access the top-rated stocks in the MLPs – Oil & Gas industry, and here for those in the Energy – Oil & Gas industry.
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ET shares were trading at $11.74 per share on Tuesday afternoon, up $0.12 (+1.03%). Year-to-date, ET has gained 45.13%, versus a -6.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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