CressCap grades Energy Transfer Partners (ETP) &a;nbsp;an A+ based on its high yield, vibrant forward growth and impressive payout ratio. Based on our scoring system, ETP currently ranks 9 out of 523 stocks in the industrial sector. The foundation of our recommendations is to identify companies that perform best and worst on the collective basis of value, growth, EPS revisions, profitability, and LT momentum. The CressCap systematic trading model gathers data daily on 6,500 companies globally and assigns academic grades (A - F) for each financial metric. These grades are scored relative to its region/sector. ETP&a;rsquo;s strong position in pipelines and oil/gas production coupled with an attractive yield &a;nbsp;make it one of CressCap&a;rsquo;s top picks.
&l;img class=&q;size-large wp-image-227&q; src=&q;http://blogs-images.forbes.com/richardtrefzwilliams/files/2018/07/ETP-Chart-1200x335.jpg?width=960&q; alt=&q;&q; data-height=&q;335&q; data-width=&q;1200&q;&g; ETP is currently sitting at the top of CressCap&s;s Equity Yield Hunter list and is worth taking a look at if you&s;re on the hunt for dividends.
ETP is in the oil and gas transmission and storage business. It makes money from royalties rather than operating profits, enabling management to lever its operating model by shifting the production aspects to partners and keeping the high margin cash flows from royalties. The company owns 11,800 miles of pipelines and processes natural gas into liquids (NGL) that can be exported at high margins.
Benefits resulting from the tax reform package, providing for full up-front depreciation of capex, better cash flow and higher EPS, suggest that the stock is positioned for potential upside in addition to the yield. Notably, the company has a very good payout ratio of 233.33% relative to the sector at 25.26% accompanied by an A+ CressCap grade. The value of this company, given an A+ rank, is shown through its P/B ratio at 0.84x vs. sector 2.56x and its P/S ratio at 0.68x compared to the sector 1.33x. ETP had $1.77 billion in 1Q18 OCF and spent 97% of it or $1 billion on capex and 38% on dividends. Incentive distribution rights (IDR) expired at the end of 2017, cleaning up the model and supporting the notion that the payout ratio is sustainable. Management believes completion of its $4 billion plus worth of new projects, that have been taxing the financial model with high capex, will balance out cash flows and maintain a coverage ratio of over 1.0. Management has expressed ETP can support its distribution rate - making the stock an attractive yield alternative for investors.
The stock continues to recover since its 2014 ABC decline. The stock should rebound towards 50-62% or $24-28 over time. Since May, the stock has been in a consolidation pattern that may be about done. One concern is the threat of inflation and higher US rates, but with such an attractive yield we think a spot protected position makes sense. Support is about $18 and then $15 below it.
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