The companies operating in the Zacks Oil and Gas – Production Pipeline industry stand as a vital pillar in the energy landscape, addressing growing demand by transporting crude oil and natural gas that fuel transportation, industry, and households. Beyond ensuring reliable energy access, these systems strengthen energy security, drive economic development, and supply critical feedstocks for petrochemicals and fertilizers. With consumption on the rise, midstream companies play an indispensable role in balancing conventional energy needs with the advancement of cleaner technologies and carbon-reduction efforts.

Pipeline operators form the backbone of energy logistics. Their extensive networks provide a safe, efficient and cost-effective means of moving crude oil, natural gas, and refined fuels across vast distances. This infrastructure secures a consistent supply for refineries, power plants, and consumers, while offering a lower-risk, more economical alternative to rail or trucking. By enabling producers to reach new markets and ensuring uninterrupted availability, pipeline companies underpin economic stability and remain essential to meeting current energy demands, supporting the transition toward a more sustainable energy future. Two leading players in the U.S. midstream sector are Plains All American (PAA Quick QuotePAA - Free Report) and Energy Transfer (ET Quick QuoteET - Free Report) .

Plains All American Pipeline focuses on the transportation and storage of crude oil and NGLs across North America. Its extensive pipeline and terminal network is heavily concentrated in high-production regions such as the Permian Basin, which serves as a major driver of volumes. The company generates the majority of its cash flow from long-term, fee-based contracts, helping to reduce its exposure to commodity price swings.

Energy Transfer, meanwhile, is a more diversified midstream operator, with assets spanning crude oil, NGLs, refined products, and natural gas pipelines, in addition to storage and processing facilities. Like Plains, it maintains a strong position in the Permian Basin. Energy Transfer also operates the Dakota Access Pipeline and holds stakes in export terminals, enhancing its scale and providing additional cash flow opportunities.

As production volumes of hydrocarbons continue to increase in the United States, demand for midstream services remains strong. In the given backdrop, let’s closely compare the fundamentals of these two stocks to determine which one is better for investment now.

ET & PAA’s Earnings Growth Projections

The Zacks Consensus Estimate for Energy Transfer’s 2025 and 2026 earnings has moved up by 7.8% and 11.7%, year over year, respectively.

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The Zacks Consensus Estimate for Plains All American Pipeline’s 2025 and 2026 earnings has declined by 5.3% and 4.4%, year over year respectively.

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Return on Equity (ROE)

Return on Equity (ROE) is an important measure of financial performance that indicates how efficiently a company converts shareholder equity into profits. It highlights management’s effectiveness in utilizing invested capital to grow earnings and enhance shareholder value.

ET’s current ROE is 11.08% compared with PAA’s 11.55%. This indicates PAA’s management is utilizing its funds marginally better than Energy Transfer.

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Debt to Capital

The oil and gas midstream industry is capital-intensive; the firms operating in this space need to borrow to fund their capital projects. At present, ET’s debt to capital is 57.16% compared with its industry average of 55.7%. PAA’s debt to capital is 40.13%.

Energy Transfer currently has a higher debt compared to PAA to run its operations, which raises some concerns about ET’s financial flexibility. However, ET has been actively working to reduce its leverage in recent years.

PAA and ET’s Cash Distribution

Midstream companies generate substantial cash flow primarily due to fee-based contracts and regulated tariffs that constitute a significant portion of their income. Both firms generate cash flows, a substantial portion of which is distributed among their unitholders.

Plains All American Pipeline’s current cash distribution yield is 8.58%. The firm has raised its distribution four times for the last five years. The annualized average distribution growth for the last five years is 19.34%.

Energy Transfer’s current cash distribution yield is 7.56%. The firm has raised its distribution for 16 times in the last five years. The annualized average distribution growth for the last five years is 18.68%.

PAA and ET’s Units Are Trading at a Discount

Plains All American Pipeline’s units are somewhat inexpensive relative to its industry. PAA’s current trailing 12-month Enterprise Value/Earnings before Interest, Tax Depreciation, and Amortization (EV/EBITDA) is 9.74X compared with the industry average of 10.66X. This indicates that the firm is presently undervalued compared with its industry.

Energy Transfer is trading at an EV/EBITDA of 9.22X, at a discount compared with its industry.

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Wrapping Up

PAA and ET are efficiently providing services to their customers in their service regions. Both have an extensive network in the prolific Permian Basin.

Plains All American Pipeline primarily operates in the transportation and storage of crude oil and natural gas liquids, with a fee-based model that offers some insulation from commodity price fluctuations. Energy Transfer has a more diversified portfolio, including natural gas pipelines and storage, but has faced challenges related to debt levels.

Even though both stocks currently carry a Zacks Rank #3 (Hold). Plains All American Pipeline is a better pick for investors based on its lower debt levels, stable cash distribution, and a better ROE compared with Energy Transfer. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.