Energy Transfer Equity, L.P. (ETE)

ValueMonkey (97.52) Submitted: 9/25/08 6:24 AM : Start Price: $22.41 ETE Score: 1.12

The current market convulsions present the buying opportunity of a lifetime for MLPs and the risk/reward trade-off presented by ETE is particularly compelling. ETE is the publicly traded general partner of Energy Transfer Partners (ETP) and, thanks to incentive distributions, ETE can grow distributions per unit by an average of 20% a year over the next five years, compared with the roughly 11% a year average expected for ETP. And yet, ETE is currently yielding ~9%, a yield normally associated with a very low-growth MLP under more normal market conditions.





Moreover, the yield spread between ETE and ETP is less than 75 bps, compared with its 200 bps historical average. While MLPs with weaker balance sheets or commodity-sensitive cash flows may find it difficult to fund growth over the coming quarters, investors can find reassurance in the number of large projects Energy Transfer already has under way that will be generating waves of new fee-based cash-flow streams, providing us with good insight into future distribution growth.

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