Desert Southwest $5.3B Announcement — a growth pivot while yield stays near 7.4%#
Energy Transfer LP [ET] opened a new chapter in August 2025 by moving forward with the $5.3 billion Transwestern Desert Southwest expansion, a project management says will add roughly 1.5 Bcf/d of capacity and more than $1.0 billion of contracted revenue when in service, targeted in the late 2020s. That decision lands at the same time the partnership is trading with a market capitalization near $60.31 billion and yielding ~7.43% on an annualized distribution of $1.305 per unit — a tension-rich combination of large growth spending and an elevated income profile that will define investor scrutiny over the coming years Energy Transfer IR: Announces Natural Gas Pipeline Project to Serve Markets.
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The juxtaposition is concrete: in fiscal 2024 Energy Transfer reported revenue of $82.67 billion, EBITDA of $15.40 billion and free cash flow of $7.34 billion (all per the company’s filings and Q2 2025 public disclosures). The partnership is deploying meaningful capital into long‑dated, contract‑backed infrastructure while maintaining an above‑market distribution yield — a strategy that can expand distributable cash flow if projects execute, but that also increases the importance of timing, cost control and balance‑sheet management Energy Transfer Reports Second Quarter 2025 Results.
Financial performance: growth, margins and cash conversion#
Across the latest fiscal year, Energy Transfer delivered what can be characterized as steady top-line growth with improving profitability. Revenue increased to $82.67 billion in 2024 from $78.59 billion in 2023, a year‑over‑year increase of +5.19% (calculated from the company’s reported yearly figures). Net income rose to $4.81 billion, an increase of +22.08% versus 2023, reflecting both operating leverage and lower discrete items in the period Energy Transfer Reports Second Quarter 2025 Results.
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Energy Transfer LP: Cash Flow Strength vs. Heavy Leverage
Energy Transfer generated **$7.34B** free cash flow in 2024 while net debt rose to **$60.25B**—a contrast that frames its Lake Charles LNG, Desert Southwest and data‑center plays.
Energy Transfer LP: Cash Returns Outpace Free Cash Flow as Leverage Climbs
Energy Transfer generated **$7.34B free cash flow in FY2024** but returned **$8.09B** to shareholders, lifting year‑end net debt to **$60.25B** and net‑debt/EBITDA to **~3.91x**.
Energy Transfer LP: Dividend Sustainability, Debt & Cash Flow
Data-driven update on Energy Transfer LP's dividend coverage, leverage dynamics and project-driven EBITDA growth — actionable metrics for income-focused investors.
Profitability expanded modestly. On the published numbers, EBITDA margin in 2024 was 15.40 / 82.67 = 18.63%, while net margin was 4.81 / 82.67 = 5.82%, consistent with the midstream profile of material depreciation and fee-based contract economics. Free cash flow remained a meaningful cash source: $7.34 billion in 2024 after $4.16 billion of capital investment, enabling distributions and selective buybacks in the year Energy Transfer Reports Second Quarter 2025 Results.
Table 1 below summarizes the income-statement trajectory and margin profile across 2021–2024 using the company’s reported annual numbers and our independent calculations.
| Year | Revenue (USD) | EBITDA (USD) | Net Income (USD) | Revenue YoY | Net Income YoY | EBITDA Margin | Net Margin |
|---|---|---|---|---|---|---|---|
| 2024 | 82,670,000,000 | 15,400,000,000 | 4,810,000,000 | +5.19% vs 2023 | +22.08% vs 2023 | 18.63% | 5.82% |
| 2023 | 78,590,000,000 | 12,560,000,000 | 3,940,000,000 | -12.57% vs 2022 | -17.27% vs 2022 | 15.98% | 5.01% |
| 2022 | 89,880,000,000 | 12,290,000,000 | 4,760,000,000 | +33.39% vs 2021 | -12.95% vs 2021 | 13.67% | 5.29% |
| 2021 | 67,420,000,000 | 12,630,000,000 | 5,470,000,000 | — | — | 18.73% | 8.11% |
Source: Company financial statements as presented in the 2024 filings and Q2 2025 results. Calculations by Monexa AI.
A three‑year revenue compound annual growth rate from 2021 to 2024 computes to ~+7.01%, showing solid top‑line expansion driven by network throughput and commercial contract wins. Net income for the same period exhibits a three‑year CAGR of approximately -4.20%, reflecting the noise of special items, depreciation and periodic impairments that are common in capital‑intensive midstream businesses.
Capital allocation and distribution sustainability: numbers that matter#
Investors focused on income should evaluate distributions against cash generation rather than GAAP earnings alone. Two complementary lenses are informative here: payout versus EPS and payout versus free cash flow. Using the reported metrics, dividends per share of $1.305 compared with EPS of $1.29 yields a payout ratio relative to GAAP earnings of ~101.16% (1.305 / 1.29). That superficially suggests the distribution exceeds accounting earnings, but it is a well‑known artifact in midstream companies where depreciation and amortization reduce GAAP income while cash flow remains robust.
A more operationally relevant measure is dividends relative to free cash flow. In 2024 Energy Transfer paid $4.62 billion in dividends against $7.34 billion of free cash flow, producing a cash‑based payout of ~62.97% (4.62 / 7.34). That level indicates a material cushion: distributions consumed roughly 63% of FCF in FY24, leaving room for growth capex and deleveraging, subject to project timing and market conditions Energy Transfer Reports Second Quarter 2025 Results.
Capital allocation in 2024 also included $3.47 billion of share repurchases and $2.83 billion of net acquisitions (per the cash flow statement), underscoring an active use of free cash flow across distributions, buybacks and M&A. That allocation mix is a strategic choice: fund growth while returning cash, but it raises focus on the balance sheet as new projects ramp.
Growth projects: Desert Southwest, Hugh Brinson and Bethel storage — scale and execution risk#
Energy Transfer’s management has signaled a deliberate pivot toward sizable, contracted growth investment. The marquee project is the Desert Southwest expansion of the Transwestern system — a $5.3 billion program the company says will add capacity into fast‑growing southwestern demand centers and generate over $1.0 billion of contracted revenue when fully ramped. Management also highlights the Hugh Brinson pipeline phases (incremental Permian takeaway capacity) and the Bethel storage expansion (added seasonal/peaking capacity) as complementary growth drivers Energy Transfer IR: Announces Natural Gas Pipeline Project to Serve Markets.
From a strategic-transformation perspective, these projects convert scale and geography into contracted fee revenue — the most durable value driver in midstream. But they also require capital and multi‑year execution: in 2024 the partnership reported $4.16 billion of investment in property, plant and equipment and in 2025 management guided to a higher growth capex cadence. Execution risk — permitting, supply‑chain costs, schedule — will be the principal margin for error. If these projects deliver on budget and on time they should increase contracted EBITDA and DCF materially; if they slip, leverage and interest coverage metrics will come under pressure.
Balance sheet, leverage and liquidity — facts and calculations#
Leverage is the counterweight to a high distribution and large growth program. At year‑end 2024 Energy Transfer reported total debt of $60.56 billion and net debt of $60.25 billion (total debt less cash and equivalents of $0.312 billion). Using FY2024 EBITDA of $15.40 billion, net debt / EBITDA = 60.25 / 15.40 = 3.91x (Monexa calculation). That is below the partnership’s higher‑end target band cited by management but near the range where investors pay heightened attention Energy Transfer Reports Second Quarter 2025 Results.
To frame valuation, we calculate enterprise value (EV) using the reported market cap near $60.31 billion, add total debt $60.56 billion, and subtract cash $0.312 billion for an EV of ~$120.56 billion. Dividing that EV by 2024 EBITDA produces EV/EBITDA ≈ 120.56 / 15.40 = 7.83x on our calculation. The company’s internal or third‑party trailing/forward metrics can differ slightly — for example some vendor screens list an EV/EBITDA near 8.07x — because of timing, inclusion of minority interests or TTM smoothing. We highlight both our calculation and the vendor figures, and note that the gap is small but meaningful to valuation conversations Energy Transfer Reports Second Quarter 2025 Results.
Table 2 aggregates balance-sheet and cash-flow highlights and shows the key leverage math used above.
| Item | 2024 (USD) | Monexa calculation / Ratio |
|---|---|---|
| Cash & cash equivalents | 312,000,000 | — |
| Total debt | 60,560,000,000 | — |
| Net debt (debt - cash) | 60,248,000,000 | — |
| Total assets | 125,380,000,000 | — |
| Total equity | 35,120,000,000 | — |
| Free cash flow | 7,340,000,000 | — |
| Dividends paid | 4,620,000,000 | Cash payout vs FCF = 62.97% |
| EBITDA | 15,400,000,000 | — |
| Net debt / EBITDA | — | 3.91x (60.25 / 15.40) |
| Market capitalization (latest quote) | 60,312,187,600 | — |
| Enterprise value (MC + Debt - Cash) | ~120,560,187,600 | EV / EBITDA = 7.83x |
Source: Company filings and Q2 2025 release. Monexa AI calculations.
Two further balance‑sheet signals deserve attention. First, Energy Transfer increased gross debt year‑over‑year (total debt rose +13.79% from $53.22 billion in 2023 to $60.56 billion in 2024) as the partnership financed growth and opportunistic refinancing activity. Second, reported current assets of $14.2 billion against current liabilities of $12.66 billion produce a year‑end current ratio of ~1.12x for 2024 (14.2 / 12.66). These are pragmatic but not excess liquidity positions, which is why management’s liquidity toolbox (revolver capacity, staged note offerings) will matter going forward Energy Transfer Reports Second Quarter 2025 Results.
Market view and analyst signals — consensus and surprises#
Analyst coverage and market behavior provide useful context without substituting for fundamental analysis. Coverage as summarized in public broker notes skews constructive: average price‑target clusters in the low‑to‑mid $20s (implying upside vs mid‑August 2025 trading levels), and several firms describe the name as attractive for income with upside from project execution and multiple convergence. Morgan Stanley’s August 2025 note trimmed a target modestly to $23 while retaining an overweight stance — a technical tweak rather than a pivot in the medium‑term thesis MarketBeat Instant Alert: Price Target Lowered to $23 at Morgan Stanley (Aug 26, 2025).
Earnings‑quality checks show small beats and misses in quarterly reporting through 2025, with recent quarters delivering results close to expectations: the August 2025 quarterly EPS print of $0.32 came slightly below consensus of $0.329 (a modest miss), and other quarters have been within a narrow band of estimates. Those micro‑surprises have not materially changed the broader narrative: DCF and contractual coverage drive distribution decisions, while project cadence drives upside [Company earnings releases and momentum data].
Insider and institutional filings in late August 2025 show selective buys by some funds and small insider purchases, which market commentary interprets as incremental confidence at current price levels, though those filings are sparse and should be treated as sentiment inputs rather than proof of a sustained trend MarketBeat filings; MarketBeat: Filing - Energy Transfer LP Holdings Boosted by Kamunting Street Capital Management LP (Aug 24, 2025).
Where the risks are concentrated#
There are three proximate risk categories that will determine whether the partnership’s calculus (growth + yield) succeeds. First, execution and schedule risk on large pipeline and storage projects: cost overruns or delays compress near‑term free cash flow and push out the timeline for contracted revenue. Second, rising interest costs or adverse capital markets conditions could increase financing expenses; Energy Transfer has actively refinanced portions of its book (including a $3.0 billion senior notes issuance in 2025), but higher rates remain a sensitivity for leverage and interest coverage. Third, macro demand for natural gas, NGLs and export flows influences the value of incremental capacity; while many projects are fee‑based, volumetric and optionality exposure persists in parts of the portfolio [Energy Transfer IR; market commentary].
We also note data‑level discrepancies that matter for investors who stress test capital structure. For example, data vendors report trailing net‑debt/EBITDA and EV/EBITDA figures that differ slightly from year‑end arithmetic because vendors use TTM figures, minority interest adjustments, or enterprise adjustments. Monexa’s calculations above use the company’s reported 2024 fiscal numbers and the latest market capitalization snapshot; investors should replicate both approaches when triangulating leverage and valuation.
What this means for investors#
Energy Transfer is operating at the intersection of three clear facts: it generates substantial free cash flow, it pays a material distribution (annualized $1.305 per unit, yield ~7.43%), and it is deploying multi‑billion dollar projects to grow contracted, fee‑based EBITDA. The most immediate implication is that the distribution looks structurally supported on a cash‑flow basis: in 2024 the partnership’s cash payout ratio versus FCF was ~63%, leaving room to fund growth and delever selectively. At the same time, the new $5.3B Desert Southwest commitment meaningfully raises the operational and financing stakes until volumes and contracted revenue materialize Energy Transfer Reports Second Quarter 2025 Results; Energy Transfer IR: Announces Natural Gas Pipeline Project to Serve Markets.
For income‑oriented portfolios, the key variables to monitor are DCF coverage through 2025/2026 (how much the distribution is covered by distributable cash), the pace of project spend and its conversion into contracted revenue, and quarterly trends in interest expense and leverage. If DCF remains robust and projects ramp as contracted, the partnership’s combination of yield and multiple compression could unwind favorably. Conversely, meaningful schedule slips or a material increase in financing costs would be the main pathways to downward pressure on coverage and optionality.
Key takeaways#
Energy Transfer’s fiscal 2024 performance shows durable cash generation: $15.4B EBITDA, $7.34B FCF and 63% of FCF consumed by distributions. Management is trading some short‑term balance‑sheet headroom for long‑dated contracted growth through the $5.3B Desert Southwest program and related projects. Our independent calculations show net debt/EBITDA ≈ 3.91x and EV/EBITDA ≈ 7.83x, placing ET below several large‑cap midstream peers on an enterprise multiple basis while yielding ~7.43%.
These are the concrete signals investors should monitor closely: DCF coverage trends in quarterly reports, progress and contracting updates on Desert Southwest and Hugh Brinson, and quarterly interest expense and maturities that influence interest coverage. Small quarterly EPS misses have occurred, but they have not materially changed the structural picture — the partnership’s cash flow mechanics and project cadence will drive the next phase.
Conclusion#
Energy Transfer presents a classic midstream trade: high current yield supported by sizable, fee‑backed cash flows, juxtaposed with a meaningful capital program that could materially improve long‑term DCF if executed but which also elevates near‑term execution and financing risk. Our arithmetic shows that distributions were comfortably covered by free cash flow in 2024 and that net leverage sits below 4x on the FY basis, but the addition of multi‑billion dollar projects increases the sensitivity of those ratios to schedule and cost outcomes. Investors and watchers should prioritize the next several quarterly DCF prints and project‑level contracting updates to judge whether the yield and the growth program are converging into the constructive scenario management lays out, or whether timing and financing dynamics will require recalibration.
References
- Energy Transfer IR: Energy Transfer Reports Second Quarter 2025 Results. https://ir.energytransfer.com/news-releases/news-release-details/energy-transfer-reports-second-quarter-2025-results/
- Energy Transfer IR: Announces Natural Gas Pipeline Project to Serve Markets (Desert Southwest). https://ir.energytransfer.com/news-releases/news-release-details/energy-transfer-announces-natural-gas-pipeline-project-serve/
- MarketBeat Instant Alert: Price Target Lowered to $23 at Morgan Stanley (Aug 26, 2025). https://www.marketbeat.com/instant-alerts/energy-transfer-nyseet-price-target-lowered-to-2300-at-morgan-stanley-2025-08-26/
- MarketBeat filings: Kamunting Street Capital / Caitlin John LLC reported buys. https://www.marketbeat.com/instant-alerts/filing-energy-transfer-lp-et-holdings-boosted-by-kamunting-street-capital-management-lp-2025-08-24/ and https://www.marketbeat.com/instant-alerts/filing-energy-transfer-lp-et-shares-bought-by-caitlin-john-llc-2025-08-23/
(All financial figures in tables and calculations are derived from Energy Transfer’s reported annual and quarterly figures cited above; Monexa AI performed independent arithmetic to produce percentage and ratio results.)