Energy Transfer Slashes 2020 Growth Capital Outlook by At Least $400M


Energy Transfer LP (ET) has reported weaker-than-expected results for the first quarter, with Q1 GAAP EPS of -$0.32 missing Street expectations by $0.66. Meanwhile revenue of $11.63B (-11.4% year-over-year) fell short by $2.77B.

ET reported an earnings net loss for the three months ended March 31, 2020 of $855 million. This included non-cash goodwill impairments of $1.3 billion as a result of decreases in commodity prices and market demand.

Based on the outlook for the current market, ET is now reducing its 2020 growth capital outlook by at least $400 million, to $3.6 billion, with another $300 million to $400 million of capital under evaluation for potential further reductions during the year.

In the first quarter, ET spent approximately $1 billion on growth capital projects. And for the full year, ET expects that approximately 70% of the growth capital will be spent on projects that are already 60% or more complete and will be in-service in 2020 or early 2021.

Looking ahead, ET lowered its 2020 EBITDA guidance to $10.6-10.8BN, which is relatively in line with consensus (would have been higher excluding the inventory revaluation). ET also believes volumes may now have bottomed and noted that in its Midstream segment in the Midland Basin producers have turned back on 25% of volumes that they shut in at the beginning of May.

Reiterating her buy rating on Energy Transfer, RBC Capital’s Elvira Scotto commented: “ET still expects to turn free cash flow positive in 2021 (after growth capex and distributions), as it expects growth capex of less than $2BN.”

She has an $11 price target on the stock (43% upside potential) and notes that while M&A is part of its strategy, the company has stated that any acquisition it undertakes must be de-leveraging.

“We expect ET units to perform in line with the AMZ tomorrow on the guidance and given ET’s underperformance the past week (ET down 5% vs. AMZ down 2%)” says Scotto.

Overall, the stock shows a cautiously optimistic Moderate Buy consensus from the Street. After losing 40% year-to-date, the average analyst price target indicates 54% upside potential from current levels. (See ET stock analysis on TipRanks).

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