Investors interested in Energy Transfer (NYSE: ET) are often drawn to its high yield, currently at 7.9%. The company pays a $0.32 quarterly distribution and aims to increase it by 3% to 5% annually.
But beyond its yield potential, I believe Energy Transfer’s stock could nearly double in the next five years.
This growth would be fueled by expansion projects and a potential increase in valuation multiples, which reflect investors’ willingness to pay more for the stock.
Here’s why I see Energy Transfer’s stock doubling in value over the next five years:
Growth Opportunities
As one of the largest midstream companies in the U.S., Energy Transfer has an extensive integrated system spanning the country. It participates in various aspects of the midstream sector, including transportation, storage, and processing of hydrocarbons. Its expansive system provides numerous opportunities for expansion projects.
The company plans to invest between $3 billion to $3.2 billion in growth capital expenditures (capex) this year. With continued investment in growth projects, Energy Transfer could see its adjusted EBITDA rise from $15.5 billion in 2024 to about $17.4 billion in 2029.
Multiple Expansion Opportunities
Energy Transfer currently trades at a low valuation compared to its peers in the midstream space, with an 8x forward enterprise value-to-adjusted EBITDA ratio. Historically, the industry has seen higher valuation multiples, indicating potential for expansion.
While the industry’s valuation multiples have declined in recent years, the increasing demand for natural gas and the slower-than-expected transition to renewables could lead to higher multiples for midstream stocks like Energy Transfer.
Potential Stock Growth
If Energy Transfer achieves its expected EBITDA growth and commands a 10x EV/EBITDA multiple, its stock could reach $30 in 2029, nearly double its current value. Even without multiple expansion, investors could still see strong returns through distributions and modest price appreciation.
Considering the growth opportunities in the natural gas sector and Energy Transfer’s strong position, the stock has the potential to nearly double in value over the next five years.
Prediction: Energy Transfer Stock Will Nearly Double in 5 Years was originally published by The Motley Fool