Energy Transfer's Next Earnings Report Could Send the Stock Higher

Energy Transfer (TXSE:ET) has plenty of momentum heading into its third-quarter earnings report this week (Tuesday, Nov. 3). The energy midstream giant delivered a sharp increase in cash flow last quarter and raised its full-year earnings outlook. It has also continued expanding its infrastructure footprint, including a recently announced multi-billion-dollar acquisition. These drivers have helped boost its unit price by nearly 27% this year.

With several growth catalysts taking shape, its upcoming results could give investors more reasons to buy the 6.5%-yielding pipeline stock.

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Coming off a strong quarter

Energy Transfer reported strong second-quarter results in early August. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 31% to nearly $5.1 billion. Meanwhile, its distributable cash flow surged 32% to $2.6 billion. Those are strong results for a mainly fee-based energy master limited partnership (MLP).

The company benefited from record natural gas liquids (NGLs) transportation and export volumes, driven by strong global demand stemming from supply disruptions. Energy Transfer also set records for crude oil transportation and midstream gathered volumes.

That strong showing gave the MLP the confidence to boost its full-year earnings outlook. It now expects to produce between $18.8 billion and $19.1 billion in adjusted EBITDA this year, up $500 million at the midpoint from its prior guidance range. That was its second guidance boost this year.

Investors will want to see evidence that these positive volume trends continued during the third quarter.

Several growth catalysts are gaining momentum

Energy Transfer is capitalizing on strong domestic natural gas demand (from power plants and AI data centers) and international demand (via liquefied natural gas (LNG) export terminals). That is supporting new infrastructure investments. For example, it's spending $2.7 billion to build the Hugh Brinson Pipeline to support data centers and AI growth in Texas, with the first phase expected to enter commercial service during the fourth quarter of this year, and investing up to $5.6 billion for the Transwestern Pipeline expansion project (in-service date: fourth quarter 2029). Growing gas demand is central to the Energy Transfer investment thesis. Given that, investors should watch for new firm transportation contracts, demand from power customers, and new project announcements in its third-quarter release.

A strong secondary growth catalyst is the expansion of NGL exports. The company is also investing to expand its NGL infrastructure platform, including adding more refrigerated storage at both its Marcus Hook and Nederland terminals, as well as additional pipeline and export capacity projects. Investors should monitor NGL volumes and any new additions to its project backlog when it reports its third-quarter results.

Another catalyst to keep an eye on is its recently announced acquisition of Vaquero Midstream. The $2.6 billion deal will enhance its position in the resource-rich Delaware Basin and boost its distributable cash flow per unit. Investors should look for any changes to the closing timeline, integration opportunities, or expected synergies in the upcoming earnings release.

The risks that could sink the stock

While there's ample positive momentum heading into the third-quarter earnings report, investors should also keep an eye on potential risks that could weigh on the stock. One is capital spending: Energy Transfer currently plans to spend between $5.6 billion and $5.9 billion on growth capital projects this year. That's up from its initial expectation of $5 billion-$5.5 billion. The company has finite resources, so investors should look for any meaningful increase in spending, as this could put pressure on its balance sheet.

Investors should also keep an eye on execution and volume risk. Pipeline expansions require construction, permitting, customer commitments, and adequate supply. Slower-than-expected production growth, project delays, or weakening markets could affect the expected growth rate.

Why the high-yielding stock could head higher

Energy Transfer's upcoming earnings report could provide another catalyst for the stock to continue moving higher if the MLP continues demonstrating robust operating growth while maintaining financial discipline. For income investors, the larger investment case rests on whether Energy Transfer can translate its expansion program into sustainable cash flow and distribution growth over the next several years. It recently notched its 20th consecutive quarterly increase and expects to grow its payout by 3% to 5% each year. As long as nothing major pops up this quarter to derail its momentum, it should remain a high-octane income investment opportunity.

Matt DiLallo has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.