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Can Fee-Based Contracts Continue to Boost ET Stock's Performance?
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Key Takeaways
Energy Transfer earns nearly 90% of its income from fee-based contracts, ensuring stable cash flows.
ET's infrastructure in key basins secures long-term deals, aiding visibility into future earnings.
ET's units trade at 10.17X EV/EBITDA TTM, a discount to the industry average of 11.39X.
Energy Transfer LP (ET - Free Report) , a U.S. midstream operator, benefits significantly from its reliance on fee-based contracts across the diversified asset portfolio. These contracts, which form the backbone of its revenue model, ensure consistent cash flows by charging customers fixed fees for transporting, storing and processing energy commodities. This approach effectively shields Energy Transfer from commodity price volatility, enabling it to deliver stable earnings even during market downturns.
Energy Transfer generates nearly 90% of its earnings from fee-based contracts and 10% from commodity and spread exposure. The company has a well-balanced asset mix that provides strong earnings support.
Energy Transfer has 130,000 miles of pipelines and associated energy infrastructure in 44 states to transport oil and gas products from basins like the Permian, Eagle Ford and Marcellus. Widespread assets enhance its ability to lock in long-term agreements with producers and refiners. ET’s assets are located to serve high-demand regions, making it a preferred partner for energy logistics. Fee-based arrangements improve visibility into future revenues, supporting disciplined capital allocation and long-term planning.
Stable cash flow from these contracts directly supports Energy Transfer’s strong distribution policy and debt reduction efforts. By generating predictable earnings, Energy Transfer maintains a solid credit profile, which in turn lowers financing costs and enhances its ability to reinvest in growth projects. This financial stability acts as a tailwind for the firm’s performance.
Energy Transfer’s fee-based business model provides a resilient foundation for growth, allowing it to navigate industry cycles while delivering consistent returns to investors.
Midstream Operators Gain From Fee-Based Contracts
Midstream firms, leverage fee-based contracts to generate stable, predictable revenues regardless of commodity price swings. The fee-based structure protects these firms from direct exposure to market volatility, allowing them to focus on operational efficiency and capital discipline.
Enterprise Products Partners (EPD - Free Report) , with one of the largest integrated NGL systems in the United States, relies heavily on fee-based income to maintain strong distributable cash flow and fund infrastructure expansions. Similarly, Kinder Morgan (KMI - Free Report) derives the bulk of its earnings from take-or-pay and fixed-fee contracts, which support high dividend payouts and ongoing deleveraging efforts.
ET’s Earnings Estimates Moving Up
The Zacks Consensus Estimate for Energy Transfer’s 2025 and 2026 earnings per unit indicates an increase of 2.86% and 4.26%, respectively, in the past 60 days.
Energy Transfer units are somewhat inexpensive relative to the industry. ET’s current trailing 12-month Enterprise Value/Earnings before Interest, Tax, Depreciation and Amortization (EV/EBITDA) TTM is 10.17X compared with the industry average of 11.39X. This indicates that the firm is presently undervalued compared with its industry.
Image: Bigstock
Can Fee-Based Contracts Continue to Boost ET Stock's Performance?
Key Takeaways
Energy Transfer LP (ET - Free Report) , a U.S. midstream operator, benefits significantly from its reliance on fee-based contracts across the diversified asset portfolio. These contracts, which form the backbone of its revenue model, ensure consistent cash flows by charging customers fixed fees for transporting, storing and processing energy commodities. This approach effectively shields Energy Transfer from commodity price volatility, enabling it to deliver stable earnings even during market downturns.
Energy Transfer generates nearly 90% of its earnings from fee-based contracts and 10% from commodity and spread exposure. The company has a well-balanced asset mix that provides strong earnings support.
Energy Transfer has 130,000 miles of pipelines and associated energy infrastructure in 44 states to transport oil and gas products from basins like the Permian, Eagle Ford and Marcellus. Widespread assets enhance its ability to lock in long-term agreements with producers and refiners. ET’s assets are located to serve high-demand regions, making it a preferred partner for energy logistics. Fee-based arrangements improve visibility into future revenues, supporting disciplined capital allocation and long-term planning.
Stable cash flow from these contracts directly supports Energy Transfer’s strong distribution policy and debt reduction efforts. By generating predictable earnings, Energy Transfer maintains a solid credit profile, which in turn lowers financing costs and enhances its ability to reinvest in growth projects. This financial stability acts as a tailwind for the firm’s performance.
Energy Transfer’s fee-based business model provides a resilient foundation for growth, allowing it to navigate industry cycles while delivering consistent returns to investors.
Midstream Operators Gain From Fee-Based Contracts
Midstream firms, leverage fee-based contracts to generate stable, predictable revenues regardless of commodity price swings. The fee-based structure protects these firms from direct exposure to market volatility, allowing them to focus on operational efficiency and capital discipline.
Enterprise Products Partners (EPD - Free Report) , with one of the largest integrated NGL systems in the United States, relies heavily on fee-based income to maintain strong distributable cash flow and fund infrastructure expansions. Similarly, Kinder Morgan (KMI - Free Report) derives the bulk of its earnings from take-or-pay and fixed-fee contracts, which support high dividend payouts and ongoing deleveraging efforts.
ET’s Earnings Estimates Moving Up
The Zacks Consensus Estimate for Energy Transfer’s 2025 and 2026 earnings per unit indicates an increase of 2.86% and 4.26%, respectively, in the past 60 days.
Image Source: Zacks Investment Research
ET’s Price Performance
Units of Energy Transfer have risen 10.2% in the past year compared with the Zacks Oil and Gas - Production Pipeline - MLB industry’s growth of 6%.
Image Source: Zacks Investment Research
ET’s Units Are Trading at a Discount
Energy Transfer units are somewhat inexpensive relative to the industry. ET’s current trailing 12-month Enterprise Value/Earnings before Interest, Tax, Depreciation and Amortization (EV/EBITDA) TTM is 10.17X compared with the industry average of 11.39X. This indicates that the firm is presently undervalued compared with its industry.
Image Source: Zacks Investment Research
ET’s Zacks Rank
Energy Transfer currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.