Energy Transfer (ET.US) receives "Outperform" rating from Scotiabank! Capital expenditures support profit growth, with potential stock price upside of 30%

According to Jinse Finance APP, Scotiabank Canada on Tuesday initiated coverage of U.S. pipeline giant Energy Transfer (ET.US) with an “Outperform” rating and a target price of $23. This target price represents nearly a 30% upside from the stock’s closing price of $17.7 on Tuesday. The bank stated that the company possesses a “large and integrated asset base covering all segments of the midstream value chain, truly forming a wellhead-to-water investment portfolio,” and is involved in all major hydrocarbon flows at different stages.

Scotiabank analyst Brandon Bingham said he believes Energy Transfer has considerable upside potential, mainly benefiting from sustained earnings growth driven by short-term and future thematic demand.

For fiscal years 2026-2028, relatively stable average capital expenditures of about $4.9 billion support the expected earnings growth, creating above-average free cash flow. The analyst believes the company’s current free cash flow yield is about 5%, which is expected to rise to about 10% by fiscal year 2028, while the peer average as of August 27 is about 6%. He pointed out, “The ‘dual combination’ of tangible short-term growth and thematic growth should drive a narrowing of Energy Transfer’s valuation discount relative to its peers.”

The analyst also noted that Energy Transfer is highly active in mergers and acquisitions and consistently maintains a high willingness to spend, which has kept the company’s stock price relatively undervalued over the long term. In addition, its complex corporate structure, and to a lesser extent its complex capital structure, have further weighed on its valuation. Although the discount has not yet been eliminated, the analyst believes the current valuation level is not reasonable. He expects that the discount relative to peers will not disappear completely, but will narrow to a more reasonable range than at present.