ONEOK Inc. (OKE) Rides on Fee-Based Earnings & Investments
ONEOK Inc. OKE continues to benefit from higher fee-based earnings and capital expenditure plans. Its expansion efforts and pipeline additions are expected to strengthen its position in the high-production region and boost its performance. The company's organic initiatives and diverse customers act as tailwinds.
However, this Zacks Rank #3 (Hold) company faces risks related to the maintenance expenses of the land and strong competition in its pipeline business.
Tailwinds
ONEOK is poised to benefit from long-term fee-based commitments in all three of its segments. More than 86% of its 2023 earnings were fee-based. The company expects more than 90% of 2024 revenues to be fee-based.
ONEOK continues to invest in organic growth projects to expand into existing operating regions and provide a broad range of services to crude oil and natural gas producers. Total capital expenditures were nearly $1.6 billion in 2023. The company now expects capital expenditures in the range of $1.75-$1.95 billion in 2024.
ONEOK recently completed the 4 billion cubic feet expansion of natural gas storage capabilities in Oklahoma. This project will subscribe 100% of this incremental capacity through 2027 and 90% through 2029. The company also completed two open seasons for additional pipeline capacity to address increased demand.
Over the last five years, natural gas liquid volumes from the Rocky Mountain region have grown at more than 20% annual growth rate, and natural gas processing volumes have increased at a 10% annual growth rate.
Headwinds
ONEOK does not own all the land on which its pipelines are situated. The company runs the risk of higher costs related to the necessary land usage.
The natural gas and natural gas liquid pipeline industries are expected to remain highly competitive. Apart from existing pipeline companies, this midstream section recently saw many energy companies forming master limited partnerships to begin pipeline services. The partnership’s assets are well spread out, but its ability to withstand competitive challenges will depend on the efficiency, quality and reliability of the services it provides.
Stocks to Consider
Some better-ranked stocks from the same sector are Energy Transfer ET and Archrock AROC, each sporting a Zacks Rank #1 (Strong Buy), and First Solar FSLR, which carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Energy Transfer delivered an average earnings surprise of 3.7% in the last four quarters. The Zacks Consensus Estimate for ET’s 2024 earnings per unit indicates an increase of 32.11% from the previous year’s reported number.
Archrock delivered an average earnings surprise of 8.46% in the last four quarters. The Zacks Consensus Estimate for AROC’s 2024 EPS indicates a rise of 44.93% from the previous year’s reported number.
First Solar delivered an average earnings surprise of 14.16% in the last four quarters. The Zacks Consensus Estimate for FSLR’s 2024 EPS indicates an increase of 75.06% from the previous year’s reported number.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
First Solar, Inc. (FSLR) : Free Stock Analysis Report
ONEOK, Inc. (OKE) : Free Stock Analysis Report
Energy Transfer LP (ET) : Free Stock Analysis Report
Archrock, Inc. (AROC) : Free Stock Analysis Report
