Credit Suisse analyst John Edwards suggests two hypothetical energy scenarios for Energy Transfer Equity LP (NYSE:ETE) amid a rise in investor intrigue riding the post-election tide, as investors ponder the potential effects from corporate tax rate reductions and what this entails for a future path for master limited partnerships (MLPs). However, the analyst notes his analysis is “purely hypothetical” and he therefore has not altered his projections in any way.
As such, the analyst reiterates a Buy rating on ETE with a price target of $20, which represents just under a 13% increase from where the shares last closed.
Essentially, “Boiling it all down, an Energy Transfer Family roll-up at the ETE level yields a valuation between $25-28/unit depending on whether its structured as a c-corp or continues as a highly simplified MLP,” Edwards believes.
Both scenarios the analyst envisions exhibit an accretive deal that would not require a distribution cut, including the issuance of approximately 1.5 billion of new ETE equity as well as around $4.5 billion of new ETE debt.
Moreover, the analyst contemplates, “In our view, we believe a single company structure not only presents an upside to valuation for ETE, but also brings with it exposure to a larger class of investors that would be attracted due to simplification of the existing structure and participation in ETE as a C-corp.”
“Investors should view this as a first stab at simplifying one of most complicated corporate structures in the MLP space. While we have tried to take into account all of the pieces of the Energy Transfer puzzle, given the complexity, our math could be wrong or we could have left out certain items. Our simplification model is available on request and we would appreciate any feedback from the broad investor community,” Edwards concludes.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst John Edwards is ranked #1,719 out of 4,227 analysts. Edwards has a 49% success rate and garners 0.9% in his yearly returns. When recommending ETE, Edwards gains 7.6% in average profits on the stock.
TipRanks analytics indicate ETE as a Buy. Based on 8 analysts polled by TipRanks in the last 3 months, 5 rate a Buy on ETE, while 3 maintain a Hold. The 12-month average price target stands at $19.57, marking a 10% upside from where the stock is currently trading.