Energy Transfer's rally over the past year helped boost its valuation while driving down its distribution yield. However, despite that surge, the MLP still trades at a bottom-of-the-barrel valuation compared to its peer group:

As the chart in the upper left hand corner showcases, Energy Transfer currently has the second lowest valuation compared to its large midstream peers. That's despite delivering steady growth, including reporting a strong 13% increase in its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) last year. Meanwhile, the MLP has a solid investment-grade balance sheet backed by a leverage ratio in the lower half of its target range.

The company's growing earnings support its rising distribution. Energy Transfer continues to target 3% to 5% annual growth in its high-yielding payout. Its increasing earnings and strong financial profile can easily support that growth rate. Last year, Energy Transfer produced $8.4 billion of distributable cash flow. That covered its cash distribution to investors (about $4.4 billion) with $4 billion to spare. The company used the excess free cash flow to fund expansion projects ($3 billion) and maintain a strong balance sheet following a series of highly accretive acquisitions in recent years.

Energy Transfer trades at a level that suggests its growth engine is running low on fuel. However, that couldn't be further from the truth. The company has secured several new expansion projects in recent weeks, including the Hugh Brinson Pipeline. As a result, it expects to ramp up its capital-spending budget to about $5 billion this year.

The bulk of its current slate of capital projects should come online next year. Because of that, they'll drive accelerated earnings growth in 2026 and 2027.