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Energy Transfer is Morgan Stanley's new Top Idea in the midstream oil and gas industry, which the firm believes will outperform in 2022 due to commodity price inflation and "durable, above-market" free cash flow generation.
"We see the sector evolving toward a total cash return yield framework, with relative performance favoring incremental return of capital," the analysts say.
Morgan Stanley rates Energy Transfer at Overweight with a $12 price target, citing exceptional valuation with the stock now trading at the lowest EV/EBITDA and highest free cash flow yield before dividends within the firm's coverage.
Return of capital offers a potential catalyst for Energy Transfer, with the firm foreseeing a combination of distribution step-up and common unit buybacks coming in 2022, perhaps as early as Q4 2021 earnings.
"We see the sector evolving toward a total cash return yield framework, with relative performance favoring incremental return of capital," the analysts say.
Morgan Stanley rates Energy Transfer at Overweight with a $12 price target, citing exceptional valuation with the stock now trading at the lowest EV/EBITDA and highest free cash flow yield before dividends within the firm's coverage.
Return of capital offers a potential catalyst for Energy Transfer, with the firm foreseeing a combination of distribution step-up and common unit buybacks coming in 2022, perhaps as early as Q4 2021 earnings.