Energy Transfer Just Raised Its 2026 Guidance. Is the Stock Still a Buy?
Key Points
Energy Transfer in the midst of several expansion projects.
It has raised its dividend for 19 consecutive quarters.
Energy Transfer raised its annual EBITDA guidance by $500 million.
Since reporting its second-quarter 2026 financial results on Aug. 4, Energy Transfer (NYSE: ET) has seen its shares climb more than 2%, trading near its 52-week high of $21.11.
Before the announcement, Energy Transfer units were trading around $20.20 to $20.28. The question is whether the price rise in the energy stock can continue. Three reasons why it can, with one reason why it may not:
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Surging natural gas demand from data centers
Energy Transfer is a diverse midstream energy company and is uniquely positioned to capture massive, long-term demand for natural gas infrastructure driven by artificial intelligence (AI) data center build-outs, power grid expansions, and Gulf Coast natural gas liquids (NGL) export facilities. In the second quarter, management for the master limited partnership highlighted expanded takeaway capacity in key basins, including the Permian, ensuring high utilization across its expansive pipeline network.
The company reported that its 442-mile Hugh Brinson Pipeline has come online earlier than expected, though full capacity isn't expected until March 2027. The Brinson pipeline moves natural gas from processing facilities in West Texas to existing pipelines south of the Dallas-Fort Worth metroplex, allowing customers the ability to reach several destinations in Texas and Louisiana. As it was, in the second quarter, NGL exports were up 25% year over year, a company record.
The company also completed upgrades to its Lone Star Express NGL pipeline and pressed into service its third and fourth 10-megawatt natural-gas-fired electricity generation plants. The company's power generation business serves 15 states with approximately 185 plants connected directly or indirectly via its extensive natural gas pipeline network. The company has long-term power agreements that directly or indirectly help hyperscalers such as Oracle, Cloudburst Technologies, and Meta Platforms.
It sees improvements to its free cash flow and capital returns
Energy Transfer reported distributable cash flow of $2.59 billion in the second quarter, up 32% year over year. That rise is what's behind the company's $500 million guidance hike to full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), now in the range of $18.8 billion to $19.1 billion, reflecting strong fee-based cash flows that insulate the business from short-term commodity price swings.
This expanding cash generation directly supports further leverage reduction and continued quarterly distribution growth for unitholders.
Despite its nearly more than 26% rise so far this year in price, the company continues to trade at a modest trailing enterprise-value-to-EBITDA multiple of around 9.7, low compared to its historical averages and its main midstream peers of Enbridge, Enterprise Products Partners, and Kinder Morgan. As institutional confidence improves following consistent operational execution and debt paydown, the stock has room for valuation re-rating.
The company's strong dividend
Energy Transfer just raised its distribution for the 19th consecutive quarter to $0.34 per share , and at the stock's current price, the yield is around 6.43%. That's superior to its main midstream competitors. If it matches its expected distributable cash flow, it has more than enough to cover its dividend and planned capital expenditures.
Watch for a drop in commodity prices
The price of natural gas has declined around 29% since peaking in late January. If sustained low natural gas prices or broader macroeconomic slowdowns force upstream oil and gas producers to trim drilling budgets or shut in production, gathering, and processing (G&P) volumes could contract.
While Energy Transfer relies heavily on fee-based, take-or-pay contracts, prolonged volume declines across regional basins would cap top-line growth and squeeze margins on uncommitted capacity.
James Halley has positions in Enbridge and Kinder Morgan. The Motley Fool has positions in and recommends Enbridge, Kinder Morgan, Meta Platforms, and Oracle. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.