Energy Transfer (ET 3.06%) has been on fire over the past year. Units of the master limited partnership (MLP) soared 42% last year. The midstream giant has continued rallying through the early part of this year, which recently pushed its unit price above $20.

Here's a look at whether the pipeline stock is still a good buy now that it's trading above $20 a unit.

What has fueled Energy Transfer's rally?

Energy Transfer had an excellent 2024. The MLP expected to generate between $15.3 billion and $15.5 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) last year. That's a 12% increase from 2023 at the midpoint.

A combination of expansion projects, acquisitions, and strong market conditions fueled that growth. The MLP closed deals for Lotus Midstream ($1.5 billion in May 2023), Crestwood Equity Partners ($7.1 billion in November 2023), and WTG Midstream ($3.1 billion in July 2024), which helped enhance its midstream footprint and growth profile. This combination of growth drivers enabled the company to report volume records across several categories in the third quarter.

The MLP has also secured several new organic expansion projects. The biggest is the $2.7 billion Hugh Brinson Pipeline. It will provide additional natural gas transportation capacity from the Permian Basin to serve growing market demand along the Gulf Coast region. That's one of several potential projects the company has under development to support growing natural gas demand, which could surge in the coming years due in part to the power needs of artificial intelligence (AI) data centers.

The value proposition

Given its rally, Energy Transfer's valuation has increased over the past year. However, it still trades at a bottom-of-the-barrel valuation compared to its peers in the midstream sector:

ET EV to EBITDA data by YCharts

That dirt cheap valuation is why Energy Transfer has a high distribution yield of 6.4%.

There's no reason for the MLP to trade at such a wide discount compared to its peers in the pipeline industry. It's growing at a faster rate than many of its competitors. Meanwhile, it has a strong investment-grade balance sheet, with its leverage ratio in the lower half of its target range of 4 to 4.5 times. While that target range is higher than some rivals, Energy Transfer's stable and diversified cash flows easily support that level. Further, it has one of the lowest dividend payout ratios in the space at around 50% of its cash flow.

More growth catalysts ahead

Energy Transfer trades as if it's not going to grow very fast in the future. However, that's not the case. The company has a few billion dollars of organic expansion projects under construction that should come online through 2026. On top of that, it has several more projects under development, including the long-delayed Lake Charles LNG export terminal.

If anything, Energy Transfer's growth prospects have only gotten stronger over the past year. Forecasters expect electricity demand in the U.S. to accelerate over the coming decades, powered by AI data centers, electric vehicles, and the onshoring of manufacturing. That should provide Energy Transfer with multiple opportunities to expand its natural gas pipeline system. Co-CEO Tom Long commented on the third-quarter earnings conference call: "Given Energy Transfer's extensive interstate and intrastate natural gas pipeline footprint, we are the best positioned to capitalize on the anticipated rise in natural gas demand for AI data centers, natural gas power plants and industrial and onshore manufacturing for decades to come. We have never seen this level of activity from a demand-pull standpoint and these opportunities are truly spread across our natural gas footprint from Arizona to Florida and from Texas to Michigan."

In addition, Energy Transfer has the financial flexibility to continue consolidating the midstream sector. The company is always on the prowl for accretive acquisitions that enhance its strategic position. Future deals would add even more fuel to its growth engine.

Still a solid buy

Energy Transfer remains a very attractive investment for income-seeking investors. The MLP offers a high-yielding distribution that it expects to grow (targeting 3% to 5% per year). Given its strong financial profile and visible growth coming down the pipeline, it should have ample fuel to achieve that goal. Add in its still-cheap valuation, and it remains a compelling buy above $20 per unit.