On Sep 30, we reiterated our Neutral recommendation on ONEOK Inc. (OKE), the diversified energy company. ONEOK currently has a Zacks Rank #3 (Hold).
Why the Reiteration?
ONEOK’s second-quarter 2013 results surpassed the Zacks Consensus Estimate as well as the year-ago number. The strong performance was primarily driven by an increase in natural gas liquids (NGL) volumes gathered and natural gas volumes gathered and processed following the completion of several projects. In addition, colder weather in its services territories had a favorable impact on demand.
ONEOK has long-term plans to develop its existing operations, which are likely to pave the way for future growth. The company is in the middle of several important projects and we believe consistent capital investment will help in their timely completions. The company has already decided to invest $4.7 billion to $5.2 billion under its capital spending program from 2010 to 2015.
ONEOK has to abide by various federal, state and local regulations, as well as extensive environmental regulations. Any changes to and modifications of existing regulations could impact the cost structure of the company. The company’s profitability largely depends on its ability to drive rate base growth in its service territories.
In addition, ONEOK’s growth largely comes from its ability to acquire assets and successfully integrate them. An inability to either find the right assets at reasonable prices or integrate them into its business would impede the company’s growth prospects or lead to cost over-runs.
Other Stocks to Consider
Other well-placed energy companies at the moment are AGL Resources Inc. (GAS), The Laclede Group, Inc. (LG) and Atmos Energy Corporation (ATO). AGL Resources Inc. and The Laclede Group hold a Zacks Rank #1 (Strong Buy) while Atmos Energy currently has a Zacks Rank #2 (Buy).