Sticking with a winner

Energy Transfer Partners benefits from low interest rates, and a jump in earnings is likely.

By Jim J. Jubak Mar 30, 2010 3:31PM

Jim JubakEnergy Transfer Partners (ETP) has hit my $47 target price just about on schedule. But I don't see any reason to sell these master limited partnership units out of Jubak's Picks quite yet.


As I wrote in July 2009, “the longer the Federal Reserve promises to keep interest rates low, the more valuable Energy Transfer Partners is and the longer I want to hold it.” 


The Fed's target for shorter interest rates is still at 0% to 0.25%, and the promise is still to keep rates at that level “for an extended period.”


Long-term interest rates have begun to push upward in anticipation of an eventual change in Fed policy, or inflation, or the depreciation of the dollar, or whatever, but the 7.84% yield on these units is still comfortably ahead of that increase. (For more on Federal Reserve policy, see this post).


So, what's ahead for Energy Transfer Partners?


The partnership has completed or is nearing completion on one set of new pipelines. Those are likely to push earnings before interest, taxes, depreciation and amortization (EBITDA) to $1.8 billion in 2010, according to Standard & Poor's. 


That puts the partnership in a position to pursue acquisitions or new capital spending that tie new natural gas production regions such as the Marcellus Shale and Haynesville geologies into its existing pipeline system.


As of Tuesday, I'm raising my target price to $52 a share by November 2010.


At the time of this posting, Jim Jubak owned shares of Energy Transfer Partners in his personal portfolio.

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