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Energy Transfer: Is Bill Gross’s favourite stock a good buy?

By: Invezz
MLP

Energy Transfer (NYSE: ET) stock price has staged a strong recovery this year as energy companies continued thriving. It jumped to a high of $16 on Monday, its highest level since June 2015. The stock has soared by over 523% from its lowest point during the pandemic.

Bill Gross loves ET

Bill Gross, the billionaire founder of PIMCO, has constantly praised Energy Transfer as his favourite stock. He believes that the company will continue doing well as energy demand in the US rises.

Most importantly, Bill Gross loves the company’s tax treatment. Energy Transfer is taxed differently from other companies because it is a Master Limited Partnership (MLP). The same is true with Leon Cooperman, the billionaire founder of Omega Advisors.

As a result, Energy Transfer is a pass-through entity, meaning that the partnership income is only taxed at the level of the partner. As such, these distributions tend to have favourable tax treatment since they are not taxed when they are received.

Bill Gross also loves the company’s strong dividend figure. The company has a forward dividend yield of about 7.95%, which is higher than the average S&P 500 yield of 1.35%. It is also higher than what US government bonds are paying.

Therefore, Energy Transfer investors are assured of strong dividends as long as the company continues to generate strong numbers. There are signs that this trend will continue as the prices of crude oil remains at an elevated level.

Energy Transfer generated over $20.5 billion in revenues in the fourth quarter of last year. Analysts expect its quarterly revenue will move to $22.5 billion in Q1 and $22.55 billion in the current quarter. For the year, analysts expect its revenue to be $84.6 billion followed by $86.7 billion.

The only change in this year’s financials will be the inclusion of Crestwood, a move that increased its pipeline miles to 125k.

The strong revenue growth and higher energy prices, therefore, remove the risk that Energy Transfer could slash its dividend. Some investors believe that this is possible because of its huge debt and payout ratio.

Energy Transfer’s balance sheet is made up of $161 million in cash and short-term investments stood at $161 million. The limited cash is because, as a partnership, the company is required to distribute 100% of its available cash to its unitholders.  It also has $1 billion of short-term debt and $51 billion of long-term debt.

Energy Transfer stock price forecastEnergy Transfer

ET chart by TradingView

The weekly chart shows that the ET stock price has been in a strong uptrend after bottoming at $2.6 in March 2020. It has flipped the crucial resistance point at $11.52 (August 2018) high.

The stock has remained constantly above the 50-week and 100-week Weighted Moving Averages (WMA). Also, the Relative Strength Index (RSI) has moved to the overbought level of 75.

Therefore, the outlook for the stock is moderately bullish, with the next point to watch being at $16.84, its highest swing in June 2015. A break above this level will point to more gains. Still, we could see some volatility when it rises to this level.

The post Energy Transfer: Is Bill Gross’s favourite stock a good buy? appeared first on Invezz

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