Energy Transfer Just Delivered a Monster Quarter. Is Its High-Yielding Stock a Buy?

Energy Transfer (TXSE:ET) delivered a monster third quarter. The energy midstream giant grew its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by more than 30%, boosted its full-year outlook by $850 million, and generated enough cash flow to cover its high-yielding distribution more than twice. Meanwhile, the pipeline operator plans to invest even more money next year in infrastructure projects to capitalize on rising energy demand.

With its growth engine firing on multiple cylinders, is the 6.7%-yielding pipeline stock a buy?

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A monster quarter

Energy Transfer isn't your typical slow-growing master limited partnership (MLP). The energy infrastructure giant reported $5 billion of adjusted EBITDA for the quarter, a massive 31% increase compared to the prior-year period. Meanwhile, distributable cash flow surged 33% to $2.5 billion.

Three catalysts fueled the strong quarter:

• Natural gas transportation: Intrastate transportation and storage EBITDA surged 50% to $346 million. That's due in part to the early completion of the Hugh Brinson Pipeline, which helped drive a 14% increase in volume, setting a partnership record.
• NGL infrastructure: NGL and refined-products EBITDA rose 16% to $1.2 billion, supported by increased volumes and favorable market conditions. NGL transportation volumes increased by 6%, exports rose by 9%, and fractionation volumes increased by 5%.
• Acquisitions: Energy Transfer's investment in Sunoco LP generated nearly $1.1 billion of EBITDA, more than double the prior-year result, primarily reflecting the Parkland acquisition.

The company had several positives come together in a single quarter, as strong market conditions, recently completed expansion projects, and acquisitions all combined to fuel a monster quarter.

A stronger full-year outlook

Energy Transfer also increased its full-year adjusted EBITDA guidance yet again. It now expects to deliver $19.7 billion–$19.9 billion in adjusted EBITDA this year. That's an $850 million increase (or about 4.5%) at the midpoint from its previous range of $18.8 billion–$19.1 billion. It's the third straight quarterly guidance increase. The company initially expected to deliver $17.3 billion to $17.7 billion of adjusted EBITDA. It now expects to deliver about 24% adjusted EBITDA growth this year.

That's not all organic growth. Sunoco's acquisition of Parkland and USA Compression's purchase of J-W Power have meaningfully boosted its share of income from these affiliated MLPs. However, Energy Transfer also benefited from robust market conditions, particularly higher export volumes driven by Middle East supply disruptions. It also completed Hugh Brinson ahead of schedule.

Even more growth is on the way

While Energy Transfer boosted its full-year earnings outlook, it lowered its 2026 growth capital spending range. The MLP now expects to invest between $5.4 billion and $5.6 billion this year. While that's down from its prior range of $5.6 billion-$5.9 billion, it's still at the very top of its initial capital spending guidance range ($5 billion-$5.5 billion).

However, investors shouldn't read that as a growth slowdown. Energy Transfer provided its initial outlook for 2027 growth capital spending, which it expects will increase to around $7 billion. That's due in part to the recent approval of the 215-mile Mississippi Pipeline Project. The company expects the project to cost $1.6 billion and to fund 51% of that cost. It's one of several new projects it has added to the backlog, adding to an already extensive list of growth capital projects that also includes the up to $5.6 billion Desert Southwest expansion project.

Energy Transfer also recently announced an acquisition of its own, agreeing to buy Vaquero Midstream for $2.6 billion. The company expects the acquisition to close in the fourth quarter. It will bolster its position in the Delaware Basin and should be immediately accretive to its per-unit distributable cash flow.

Is Energy Transfer a buy?

Energy Transfer has generated $7.8 billion of distributable cash flow through the first nine months of this year. That has covered its 6.7%-yielding payout by a very comfortable 2.2 times. This high-yielding payout provides a meaningful foundation for long-term total returns.

The MLP only needs to grow its distributable cash flow per unit by around 3% annually to deliver a double-digit total annual return, assuming no change in its valuation multiple. That seems very reasonable, considering its low valuation (around seven times trailing 12-month distributable cash flow) and all the growth it has coming down the pipeline. It has delivered a more than 20% increase in distributable cash flow per share over the last 12 months. While acquisitions and strong market conditions certainly enhanced growth over the past year, Energy Transfer recently secured an accretive acquisition and has several high-return growth capital projects in the backlog. That puts it in a strong position to continue growing its per-unit cash flow.

While there are risks, including cost and execution risks for its expansion projects and integration risk with Vaquero, the MLP looks like a buy for investors seeking income and solid total return potential. That assumes you're comfortable receiving the Schedule K-1 Federal Tax form the MLP sends investors each year.

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.