ET vs. EPD: Which Midstream Stock Deserves a Spot in Your Portfolio?

The companies operating in the Zacks Oil and Gas – Production Pipeline industry play a critical role in the energy ecosystem by enabling the efficient transportation of crude oil and natural gas to meet growing demand across transportation, industrial operations and residential use. In addition to ensuring a stable and reliable energy supply, midstream infrastructure enhances energy security, supports economic development and supplies key feedstocks for petrochemicals and fertilizers. As energy consumption continues to rise globally, midstream companies remain essential in meeting traditional energy requirements while also facilitating the transition toward cleaner technologies and reduced carbon emissions.

Their extensive pipeline networks offer a safe, efficient and cost-effective way to transport crude oil, natural gas and refined products over long distances. This infrastructure ensures a reliable supply to refineries, power plants and end users, while providing a lower-risk and more economical alternative to rail and truck transportation. Two leading players in the U.S. midstream sector are Enterprise Products Partners EPD and Energy Transfer ET.

Energy Transfer operates a more diversified midstream platform, with assets across crude oil, NGLs, refined products and natural gas pipelines, along with storage and processing facilities. Energy Transfer has a strong footprint in the Permian Basin. In addition, Energy Transfer operates the Dakota Access Pipeline and owns interests in export terminals, expanding its scale and creating incremental cash flow opportunities.

Enterprise Products Partners presents a strong investment case driven by its expansive, well-positioned pipeline network and diversified midstream assets. Its extensive footprint links major supply basins with critical demand hubs, while a robust portfolio of growth projects enhances scale and cash flow visibility. This broad infrastructure base underpins stable, fee-based revenues and supports long-term durability in a changing energy landscape.

Increasing hydrocarbon volumes in the United States are generating demand for midstream services. Amid such a backdrop, let’s closely compare the fundamentals of these two stocks to determine which one is better for investment now.

EPD & ET’s Earnings Growth Projections

The Zacks Consensus Estimate for Enterprise Products Partners’ 2026 earnings has decreased 1.40% in the past 60 days.

The Zacks Consensus Estimate for Energy Transfer’s 2026 earnings has moved up 1.30% in the past 60 days.

Return on Equity

Return on Equity (“ROE”) is an important measure of financial performance that indicates how efficiently a company converts shareholder equity into profits. It highlights management’s effectiveness in utilizing invested capital to grow earnings and enhance shareholder value.

ET’s current ROE is 10.17% compared with EPD’s 19.43%. This indicates EPD’s management is utilizing its funds marginally better than Energy Transfer.

Debt to Capital

The oil and gas midstream industry is capital-intensive. The firms operating in this space need to borrow to fund their capital projects. At present, ET’s debt to capital is 58.23% compared with its industry average of 56.63%. EPD’s debt to capital is 52.77%.

EPD and ET’s Cash Distribution

Midstream companies generate substantial cash flow primarily due to fee-based contracts and regulated tariffs that constitute a significant portion of their income. Both firms generate cash flows, a substantial portion of which is distributed among their unitholders.

Enterprise Products Partners’ current cash distribution yield is 6.12%. The firm has raised its distribution nine times over the past five years. The annualized average distribution growth for the past five years is 4.68%.

Energy Transfer’s current cash distribution yield is 7.21%. The firm has raised its distribution 17 times in the past five years. The annualized average distribution growth for the past five years is 21%.

Valuation

Enterprise Products Partners’ units are trading on par with the industry. EPD’s current trailing 12-month Enterprise Value/Earnings before Interest, Tax, Depreciation and Amortization (EV/EBITDA) is 11.31X, on par with the industry average. 

Energy Transfer is trading at an EV/EBITDA of 10.04X, at a discount compared with its industry. This indicates that the firm is presently undervalued compared with its industry.

Price Performance

Enterprise Products Partners’ units have gained 13% in the past six months compared with Energy Transfer’s rally of 6.2%.

Price Performance (Six months)

Wrapping Up

Enterprise Products Partners and Energy Transfer provide efficient midstream services across their core operating regions, supported by extensive infrastructure in the highly productive Permian Basin. The increasing production of hydrocarbon volumes in the United States is creating more opportunities for the midstream firms.

Energy Transfer shows promise with a discounted valuation and better earnings estimate revision. But, based on the above discussion, Enterprise Product Partners currently has an edge over Energy Transfer due to its better ROE, lower percentage of debt usage and stronger price performance.

Both companies currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

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This article originally published on Zacks Investment Research (zacks.com).

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