ONEOK Is Outperforming Peers ahead of 1Q16 Earnings
Analyst recommendations for OKE
Of the analysts surveyed by Bloomberg, 25% rated ONEOK (OKE) a “buy” and 62.5% rated it a “hold.” 12.5% of the analysts rated it a “sell.” The consensus target price for ONEOK in one year is $29.3. Over the same period, the low and high target price for the stock is $21 and $40, respectively. Currently, ONEOK’s units trade near $34.81. If it attains the median target price within a year, it would mean a negative 16% price return for investors. It would be interesting to see if recommendations for the stock change once 1Q16 results are announced.
In comparison, 13% analysts rated ONEOK Partners (OKS) a “buy,” 60% rated it a “hold,” and 27% rated OKS a “sell.” Thus, more analysts are bullish on ONEOK compared to its MLP OKS. ONEOK operates as a pure-play general partner of ONEOK Partners.
The above table shows recommendations and target prices for ONEOK and ONEOK Partners from some of the brokers that were surveyed. ONEOK forms 0.9% of the WisdomTree Dividend ex-Financials ETF (DTN).
As for its peers, 47% rate Kinder Morgan Inc. (KMI) a “buy” and 88% rate Enterprise Products Partners (EPD) a “buy.”
Outlook for ONEOK
Apart from oil prices, how ONEOK’s stock performs in future will depend on two crucial factors: its ability to bring down leverage and grow EBITDA (earnings before interest, tax, depreciation, and amortization) even in the challenging commodity price environment. OKE’s initiative to minimize commodity price exposure in its Gathering and Processing segment is one step towards the latter objective.
ONEOK Partners expects to achieve a debt-to-EBITDA ratio of 4.2 times or less by late 2016. OKS expects no public equity offerings in 2016 and “well into 2017.”
In February 2016, ONEOK reaffirmed its 2016 guidance of cash flow available for dividends of ~$675 million and a dividend coverage ratio of ~1.30 times. The company has a project backlog of $4 billion–$5 billion, which is primarily fee-based.
OKE expects its quarterly dividends to remain flat at the current $0.62 per share. At the same time, OKS expects distribution coverage at 1.0 times or better in 2016 assuming flat distributions compared to 2015.
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