Morningstar | Energy Transfer Continues Growth Push; Units Deeply Undervalued
We are reaffirming our $22 per unit fair value estimate for Energy Transfer after the company closed out a transformative 2018 by reporting $9.5 billion of adjusted EBITDA and $5.4 billion of distributable cash flow to partners. We are reaffirming our no-moat and stable moat trend ratings.Strong fourth-quarter results contributed to full-year results that exceeded our expectations. Management's 2019 EBITDA guidance range of $10.6 billion-$10.8 billion also is above our forecast. We will be reviewing our near-term forecasts but are maintaining our long-term growth outlook, limiting the positive impact on our fair value estimate from the near-term outperformance.
Higher systemwide oil and gas volumes in the fourth quarter contributed to the strong financial results. This was a combination of higher utilization and production increases, particularly at its intrastate and interstate segments. Although we expect some of this volume increase is cyclical, we expect system volume growth to continue in 2019 as Energy Transfer brings new projects online.
Natural gas liquids and refined products remains a strong growth area for Energy Transfer. Segment earnings should get another boost in 2019 with the addition of the Mont Belvieu fractionator expansion, which went into service this month. An additional expansion at Mont Belvieu and the Lone Star Express NGL pipeline should contribute to segment earnings growth beyond 2019.
The company kept its first-quarter distribution flat at $0.305 per unit, implying a $1.22 per unit full-year distribution and an 8% yield as of Feb. 21, 2019. We don't expect any near-term threat of a distribution cut, but the distribution might be slow to grow as it executes its $5 billion capital investment plan in 2019. As capital investment slows beyond 2019, we expect distribution growth to pick up.
Energy Transfer is a holding company. Through its subsidiaries, the company is engaged in natural gas operations, including natural gas midstream and intrastate transportation and storage and interstate natural gas transportation and storage, and crude oil, natural gas liquid (NGL) and refined products transportation, terminalling services and acquisition and marketing activities. In addition, the company owns investments in other businesses. The company's segments include: intrastate transportation and storage; interstate transportation and storage; midstream; NGL and refined products transportation and services; crude oil transportation and services; investment in Sunoco LP; investment in USAC; and all other.
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