Insider buying refers to the purchase of stock by company executives, directors of the board, and major stakeholders (those holding 10% or more of the outstanding shares). As an indicator, investors generally follow insider buying activity for one reason - when these top-level company insiders are buying stock with their own money, it's usually because they think the share price is going higher. And because these insiders often have greater-than-average insights into the company's operations, financial standing, and strategic plans, their decision to invest is often interpreted as a strong bullish signal.
Amid recent tensions in the Red Sea, energy prices were back in focus last week - including natural gas (NGG24). However, the insider buying trend on one top natural gas stock stretches far back beyond the most recent supply disruption. Here's a closer look.
Co-CEO Buys Energy Transfer Shares - Again
Energy Transfer (ET) is a Texas-based energy company founded in 1995 by Ray Davis and Kelcy Warren. One of the leading midstream energy companies in the U.S., Energy Transfer transports, stores and processes natural gas, natural gas liquids (NGLs), and crude oil.
The company commands a market cap of $43.37 billion, and offers shareholders a healthy dividend yield of 9%, thanks to its limited partnership structure.
Energy Transfer stock is up 18.4% on a YTD basis. That's a significant outperformance compared to the Energy Select Sector SPDR Fund's (XLE) 0.7% return over the same period.
However, the stock is reasonably valued at current levels. ET trades at a forward price/sales ratio of 0.54, which is well below the energy sector median - and its forward price/cash flow multiple of 3.82 is also attractive. Meanwhile, the forward price/earnings ratio of 10.82 is right in line with industry peers.
Co-CEO Marshall McCrea seems to like ET around current prices, as he has been a prominent buyer of his own company's stock in 2023. That includes his most recent purchase on Dec. 12, when the exec bought 50,000 shares at an average price of $13.19 for a total value of about $659,500. With this latest purchase, McCrea has bought Energy Transfer shares worth more than $2 million since the start of September, and now owns a stake of 0.2330%.
And he has not been the only notable insider loading up on the company's stock in 2023, with multiple purchases also made by Chair Kelcy Warren and General Counsel Thomas Mason.
The Bull Case for ET
Aside from this heavy insider buying, there are more reasons to like the outlook for ET right now.
In Q3 2023, Energy Transfer's revenues came in at $20.7 billion - down 9.5% from the previous year, but higher than Wall Street expected. Adjusted EPS of $0.33, on the other hand, fell just short of estimates.
That said, crude and NGL transportation volumes hit new records during the quarter. Natural gas transportation volumes rose 14%, midstream gathered volumes were up 4%, crude transportation volumes climbed 23%, and terminal volumes jumped 15% from the previous year, highlighting the company's operational strength.
Plus, distributable cash flow attributable to partners climbed to $1.99 billion for the quarter, up from $1.58 billion in the year-ago period.
M&A has been a major theme for the energy sector this year, and ET is no exception. Energy Transfer announced an all-equity $7.1 billion acquisition of midstream energy company Crestwood in August, which is expected to be value accretive. Earlier in the year, the company snapped up Lotus Midstream, another midstream energy company, for $1.45 billion.
Analysts are bullish about Energy Transfer stock. The consensus rating is a “Strong Buy,” with a mean target price of $17. This denotes an upside potential of about 23.5% from current levels. Out of 12 analysts covering the stock, 10 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 1 has a “Hold” rating.
