Hook / Thesis
Energy Transfer is handing the market what it wants right now: clearer FY26 guidance and a pipeline of growth projects that, if executed, materially lift cash generation and distribution optionality. The stock trades near $16.91 (last print in the snapshot), while the partnership continues to generate robust operating cash flow - roughly $2.6B to $2.9B per quarter in recent quarters - and has nudged its quarterly cash distribution up to $0.3325 per unit (declaration 10/28/2025, pay date 11/19/2025).
That combination - an 8%-ish yield at current levels plus guidance that points to EBITDA/cashflow expansion for FY26 - creates an asymmetric trade for buyers willing to accept execution and leverage risk. My actionable idea: take a position in ET on a measured basis with a tight stop and defined profit targets. I like the trade because the fundamentals are cashflow-first, the payout is already attractive, and guidance is giving the market a catalyst; I respect the balance-sheet and project execution risks, which is why this is a risk-managed trade, not a buy-and-forget play.
Why the market should care - business and fundamental drivers
Energy Transfer is a diversified midstream operator moving natural gas, natural gas liquids, crude oil and refined products from wellhead to demand centers. The company also controls Sunoco and USA Compression through its GP relationship. That scale matters: the most recent quarterly report (fiscal Q3 2025, period ending 09/30/2025, filing accepted 11/06/2025) shows revenues of $19.954B and operating income of $2.151B for the quarter. On the cash front the company reported net cash from operating activities of $2.572B for that quarter.
Why that matters now: the company is guiding FY26 toward higher EBITDA and is funding growth projects (LNG, pipeline expansions, Permian-related projects referenced in market coverage). More operating cashflow gives optionality - to fund growth capex (~negative investing cash flow in recent quarters), to keep raising the distribution, or to shore up leverage. For investors attracted to income and visible industrial cashflow, a midstream operator that combines high current yield with improving guidance is a natural candidate for a trade.
Conservative view of recent operating trends: Q1 2025 operating income was $2.491B (filing 05/08/2025), Q2 2025 was $2.309B (filing 08/07/2025), Q3 2025 was $2.151B (filing 11/06/2025). Net cash from operations across those quarters was roughly $2.9B, $2.76B and $2.57B respectively.
Balance-sheet context
Balance-sheet size eclipses $129B in assets (Q3 2025 assets $129.331B). Long-term debt is meaningful - the latest long-term debt reading in Q3 2025 is $63.1B. Equity stands at roughly $45.344B. In short: a large asset base, large absolute debt load. That means leverage is a feature of the story - the yield is funded by cash generation but the cap table and debt mechanics matter to distribution coverage and downside scenarios.
Valuation framing
The snapshot price is $16.91 (last trade). Market cap is not provided in the dataset, so I prefer a cashflow-centric valuation framing rather than a rounded EV/EBITDA multiple here. Two simple lenses:
- Income yield - The most recent quarterly declared cash distribution is $0.3325 (declaration 10/28/2025, ex-dividend 11/07/2025, pay 11/19/2025). Annualized that is about $1.33 per unit. At $16.91 the yield is roughly 7.9% - an attractive starting point for income investors.
- Cashflow coverage - the partnership produces mid-single digit billions of operating cashflow per quarter. That cashflow supports the distribution and funds project capex. If FY26 guidance drives a noticeable uplift in EBITDA/OCF, implied forward coverage and distribution optionality would improve materially - which is the core bullish case.
Absent a peer EV/EBITDA table in the dataset, valuation is qualitative: the market currently prices ET like a high-yield, steady midstream with risk of execution and leverage - that compresses multiples relative to investment-grade pipeline peers. If FY26 shows durable EBITDA expansion, sentiment can rerate some of that compression.
Catalysts (2-5)
- FY26 guidance and subsequent quarterly updates - clarity on EBITDA and capex cadence (guidance was in the headlines 01/06/2026).
- Progress updates on major growth projects (LNG / Permian expansions) that convert guidance into booked cashflow.
- Distribution announcements and coverage metrics around payout - continued small quarterly increases would be constructive.
- Macro catalysts: natural gas demand (power, exports, data center power demands) and interest rate direction - both move midstream sentiment.
Actionable trade plan (entry / stop / targets)
Trade direction: Long. Time horizon: Position (several weeks to months) - this is sized for the FY26 guidance follow-through window.
Entry (layered): 1) Primary entry 16.25 - 16.95 (current reference 16.91). 2) Add-on tranche 15.75 - 16.25 if broader dip occurs.
Stop: hard stop at 15.00 (below recent multi-month support and sizeable round-number cushion).
Target 1 (near-term): 18.50 (traders' take-profit on initial move, ~+9%).
Target 2 (swing): 21.00 (retest of $20-21 resistance zone from earlier months, ~+24%).
Target 3 (position / event-driven): 24.00 (if FY26 guidance execution and distribution optionality materialize, ~+42%).
Position sizing: limit any single account exposure to a small percentage of liquid net worth (rule-of-thumb 2-3% capital on this trade given yield and execution risk).
Why these levels? The stop respects recent support and the targets align with tactical resistance bands in the recent price history (20-21 was a prior range). This trade is a measured income-plus-upside play: investors lock in yield while targeting capital gains on guidance conversion.
Key supporting data points
- Q3 2025 (period ended 09/30/2025, filing 11/06/2025): revenues $19.954B; operating income $2.151B; net cash from operating activities $2.572B.
- Q1 and Q2 2025 operating income lines were $2.491B (Q1) and $2.309B (Q2) - demonstrating stable midstream operating profitability across the year.
- Balance-sheet scale - assets $129.331B and long-term debt $63.1B (Q3 2025) - large-scale operations but meaningful leverage to monitor.
- Quarterly distribution has trended slightly upward: Q1 2025 $0.3250, Q2 $0.3275, Q3 $0.3300, Q4 (declared 10/28/2025) $0.3325 - annualizing to ~ $1.33.
Risks and counterarguments
- Commodity and demand risk: Midstream revenues and volumes are connected to natural gas and NGL demand. A sustained commodity cycle reversal or weaker takeaway demand would pressure throughput and margins.
- Execution risk on growth projects: FY26 outperformance depends on completed projects (LNG, pipeline expansions). Delays or cost overruns would compress expected cashflow tailwinds.
- Leverage and refinancing risk: Long-term debt sits north of $60B; higher interest rates or weaker cashflow could tighten refinancing windows and hurt distribution coverage.
- Distribution cut risk: Even with a high yield, a misstep in coverage metrics or a need to preserve cash for capex could trigger a distribution pause or reduction, which would be severely price-negative.
- Counterargument: the market may have already priced the guidance ( sentiment is often forward-looking). If guidance is incremental rather than transformational, upside could be limited and the yield already compensates for status quo - in that case capital appreciation is capped and downside from leverage remains the main risk.
What would change my mind
I would reduce conviction or switch to a neutral view if one or more of the following occur: 1) Guidance is materially revised downward, 2) the company delays or reports major cost overruns on key projects, 3) distribution coverage falls below a conservative buffer (operating cashflow insufficient to fund distribution + necessary capex), or 4) there is a clear deterioration in commodity demand that persists across quarters.
Conversely, my conviction would grow if the company posts sequential quarters of rising OCF and explicit FY26 EBITDA conversion with clear project revenue recognition and maintains small, consistent distribution increases while bringing down net leverage metrics.
Conclusion and stance
Stance: Long (position) with disciplined risk controls. Energy Transfer is a cash-generative machine in an industry that pays its investors to wait. The FY26 guidance provides a real catalyst: if the company converts guidance into the sort of durable EBITDA uplift it suggests, the stock should re-rate (some combination of multiple expansion and distribution re-pricing). That makes a defined long position - entry ~16.25-16.95, stop 15.00, targets 18.50 / 21.00 / 24.00 - an actionable trade for investors comfortable with midstream execution and leverage risk.
Keep position sizes modest, watch coverage metrics and project execution closely, and treat the distribution as an income cushion while the growth story is proven. If the company misses on either guidance or project execution, reassess quickly - the balance-sheet means downside can be sharp. For income-oriented traders who want carry while retaining upside optionality, this trade presents a compelling, measurable risk/reward around FY26 visibility.
Disclosure: Not investment advice. This is a trade idea based on publicly reported quarterly financials, cashflows and dividend history through the filings and corporate action dates indicated above. Do your own due diligence and size positions to your risk tolerance.