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On Tuesday, Mizuho (NYSE:MFG) Securities adjusted its outlook on Energy Transfer (NYSE:ET), reducing the price target from $24.00 to $22.00 while maintaining an Outperform rating on the shares. The revision reflects Energy Transfer’s underperformance relative to its peers in the midstream sector, with a year-to-date decline of 10.4%, compared to a 1.8% increase in the AMEI index. According to InvestingPro data, the stock currently trades below its Fair Value, suggesting potential upside opportunity despite recent weakness. The company maintains a strong dividend yield of 7.6% and has increased its dividend for three consecutive years.
The reassessment by Mizuho is attributed to Energy Transfer’s fiscal year 2025 adjusted EBITDA guidance, which came in below expectations, and a significant increase in anticipated growth capital expenditures. The company’s standalone growth capex is projected to be around $5 billion, substantially higher than the estimated $3.2 billion. InvestingPro analysis shows the company generated $14.4 billion in EBITDA over the last twelve months, with a relatively healthy EV/EBITDA ratio of 9.1x.
Mizuho analysts had anticipated that revisions in capital expenditures across the midstream sector would be welcomed by the market. However, recent macroeconomic uncertainties have cast doubt on this assumption. Concerns specific to Energy Transfer include the size of its fiscal year 2025 capex backlog, the nature of the capital expenditures directing over 65% of the forecasted growth capex towards segments like ’Midstream’, ’Crude’, and ’NGL and Refined Products’—segments that may experience slower growth in a weak crude market.
Furthermore, Mizuho forecasts that Energy Transfer’s balance sheet will be on the higher end of its projected debt-to-EBITDA ratio of approximately 3.5-4.0 times by the end of fiscal year 2025. The firm also noted potential policy risks associated with a ’Trump 2.0’ administration, which could have negative implications for areas such as natural gas liquids (NGL) exports, posing additional challenges for Energy Transfer.
In other recent news, Energy Transfer has seen multiple updates from financial analysts regarding its earnings and stock ratings. Goldman Sachs adjusted its price target for Energy Transfer to $20.00 while maintaining a Neutral rating. The firm anticipates the company’s EBITDA for the first quarter of 2025 to be $4,035 million, slightly below the consensus estimate. UBS, on the other hand, reaffirmed a Buy rating for Energy Transfer, setting a higher price target of $24.00. UBS increased its first-quarter EBITDA forecast to $3,951 million, citing operational improvements and favorable weather conditions. Meanwhile, RBC Capital Markets maintained an Outperform rating with a $23.00 price target, emphasizing Energy Transfer’s growth potential due to its strategic assets. In related developments, Sunoco LP, which is associated with Energy Transfer, announced a $1 billion senior notes offering, upsized from an initial $750 million due to high demand. The proceeds are intended to repay existing debts, including redeeming NuStar Logistics’ senior notes due in 2025. These recent developments highlight Energy Transfer’s ongoing financial activities and strategic positioning in the energy sector.
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