Energy Transfer Partners. L.P. (ETP) OUTPERFORM Y. Siegel

CP: US$ 44.11 TP: US$ 49 CAP: US$ 7.4b

INITIATING Coverage with an OUTPERFORM Rating and a $49 Target Price - Core MLP Holding with Visible Growth but Some Near-Term Headwinds

• We initiate coverage of ETP with an Outperform rating and a 12-month price target of $49. ETP provides a current yield of 8.2% and offers a three-year distribution CAGR of 4.7% by our estimates.

• Investment Case: ETP is a core MLP holding, in our view, with an expansive and well-positioned network of natural gas pipelines. Although we see potential near-term headwinds (the current low natural gas price environment, narrow basis differentials, and difficult third quarter comps), we believe ETP should provide investors with an attractive long-term total return, as cash flows from its expansion program should drive distribution growth.

• Forecasts: We expect EBITDA to ramp up from $1.5 billion in 2009 to $1.7 billion in 2010 and $1.9 billion in 2011, mainly driven by contributions from major natural gas pipeline expansions coming on line. Distribution coverage should remain at approximately 1.1 times over the forecast period.

• Valuation: We derive our price target of $49 through a distribution discount model. Our assumptions include a discount rate of 10%, distribution CAGR of 4.4% over five years, and a perpetual growth rate of 1.5%.