Energy Transfer LP Gets A Price Target Reduction

Energy Transfer LP (NYSE: ET) just got a price target reduction and we’re glad it did. The news brought the market back into focus and at an opportune time for income investors. The units recently pulled back to support on a correction in natural gas prices and a reduction in the natural gas growth forecast but don’t read too much into that news. 

The outlook for natural gas growth was more than halved and sparked a 35% correction in natural gas prices but the takeaways are bullish. For one, the outlook for natural gas is still growth-oriented and now at more reasonable and sustainable levels, levels that may even allow for upside surprises once Russia's capacity is replaced by other sources. For another, even with the new price target reduction, the analysts are forecasting steady revenue and earnings and by extension a safe and steady dividend. 

Energy Transfer LP is a high-yielding stock delivering more than 7.5% even with the dividend decrease. The company cut the payment by more than 50% in the wake of the pandemic and has only recently begun to bring it back to pre-pandemic levels. As it is, it may be a little while before those levels are reached even with the high price of natural gas. Until then, the payout ratio is running at about 53% of the 2022 consensus estimate for earnings and 50% versus the 2023 estimate. Assuming the company can continue to build on business, we see the company outpacing the consensus in 2022 and posting at least low-single-digit revenue growth in 2023. 

The Analysts Are Pushing Energy Transfer LP Higher 

The 8 analysts with current ratings on Energy Transfer LP are bullish on the stock despite the new price target reduction and their estimates are pushing the market higher. The Marketbeat.com consensus rating is a Buy that has held firm and steady for at least 12 months and it comes with an upwardly trending price target. The new price target reduction has the stock pegged at $13 or up about 25% compared to the $14.25 and 37% implied by the consensus but the consensus is on the rise. The Marketbeat.com consensus rating is up 18.75% versus 1-year ago, 3.8% versus 3 months ago, and 1% in the last 30 days, and we think it may move up again following the next earnings report. 

The analysts are predicting a slight down-turn in both revenue and earnings in Q2 that we don’t see coming. The early spring may have been wet and miserable in most of the country but much of the time since has been hot and should drive demand for natural gas. In our view, the company should easily outpace the consensus. 

The Technical Outlook: Energy Transfer Is Trending Higher 

As ugly as the chart is, Energy Transfer LP is trending higher and offering a trend-following entry point right now. The units pulled back to the 150-day moving average where it is now showing support. Assuming the market follows through on this move we see it moving up to the $12.00 range for a gain of 20% at least. The $12.00 range will be a key turning point, if the market can get above that level we see Energy Transfer LP extending the rally to $14.00 or higher.