Energy Transfer Equity, L.P.
(ETE - Snapshot Report
) offers investors solid growth and income at an attractive price.
The partnership has steadily raised its distribution, which currently yields 6.7%, and estimates have been rising after it delivered solid first quarter results on May 8.
It is a Zacks #2 Rank (Buy).
Energy Transfer Equity is a publicly traded partnership, which owns the general partner and 100% of the incentive distribution rights, and approximately 28% of the outstanding limited partner interests of Energy Transfer Partners L.P. (ETP).
It also owns the general partner interests, 100% of the incentive distribution rights, and approximately 22% of the outstanding limited partner interests of Regency Energy Partners L.P. (RGP). ETE is also the parent of Southern Union Company, a diversified natural gas company.
The Energy Transfer Equity family of companies owns approximately 45,000 miles of natural gas and natural gas liquids pipelines. It has a market cap of $10.5 billion.
First Quarter Results
Energy Transfer Equity delivered better than expected first quarter results on May 8. Earnings per share came in at 73 cents, crushing the Zacks Consensus Estimate of 35 cents. It was an 83% increase over the same quarter in 2011.
This increase was due in large part to a gain on the deconsolidation of its propane business - not exactly something to get excited about. But adjusted distributable cash flow did rise 4% year-over-year to $130.7 million.
And analysts have been revising their earnings estimates significantly higher for both 2012 and 2013. It is a Zacks #2 Rank (Buy).
Based on consensus estimates, analysts expect strong earnings growth over the next two years. The Zacks Consensus Estimate for 2012 is now $2.20, a 33% increase over 2011 EPS. The 2013 consensus is currently $2.34, corresponding with 6% growth.
Not only do analysts expect strong earnings growth but strong distributable cash flow growth as well. And this should translate to higher distributions down the road.
The partnership currently pays a distribution that yields a solid 6.7%. Since 2007, it has raised it at a compound annual rate of 13%.
Valuation looks reasonable too. Shares trade at 17.1x 12-month forward earnings, a discount to its historical median of 18.4x.
And its price to tangible book ratio of 1.3 is also below its historical multiple of 2.2.
The Bottom Line
With rising estimates, strong growth projections, a juicy 6.7% yield and reasonable valuation, Energy Transfer Equity offers attractive total return potential.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.