Morningstar | Energy Transfer's Growth Continues as Consolidated Unit; Announces Mont Belvieu Expansion
We are reaffirming our $22 per unit fair value estimate for Energy Transfer after reporting third-quarter earnings, its first as a combined entity. We are reaffirming our no-moat and stable moat trend ratings.Year-to-date results suggest Energy Transfer is on track to meet our full-year expectations. Year-to-date earnings and cash flow adjusted for the merger were up markedly, as we expected. Third-quarter adjusted EBITDA was $2.58 billion, up 30% from the third quarter of 2017. The company reported $1.38 billion distributable cash flow in the third quarter, up 28% from the third quarter of 2017. Energy Transfer has enhanced its distribution coverage and credit metrics following the merger and considering the cash flow growth.
The jump in cash flow and earnings is primarily due to the Bakken pipeline, which went into service in mid-2017; the ramp-up of the Rover gas pipeline; and favorable gas and liquids volumes. We expect the year-to-date growth rate to moderate in the fourth quarter as late 2017 results already include Bakken. We continue to forecast 7% full-year EBITDA growth in 2018.
The company's improved financial stature will allow it to pursue growth investments such as the Permian Gulf Coast Pipeline and supply laterals. Most recently, we think its proposal to build another natural gas liquids fractionation unit at its Mont Belvieu, Texas, facility by early 2020 will be particularly profitable given the constraints in the region. Firm long-term contracts significantly de-risk the project and should support distribution growth beyond 2020.
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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