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ONEOK (OKE) to Benefit From Steady Organic Growth Project

Zacks Equity Research

Demand for ONEOK Inc.’s OKE services is expected to receive a boost from increase in drilling activities in high productive regions. We recently issued an updated research report on the company.

For 2019, Earnings estimates for ONEOK remained unchanged at $3.10 per share in the past 30 days. The same for 2020 has been stable at $3.79 in the said period.

Additionally, the company delivered an average four-quarter positive earnings surprise of 3.17%.

What’s Driving the Stock?

ONEOK is poised to benefit from long-term fee-based commitments in the Natural Gas Gathering and Processing as well as Natural Gas Liquids segments. The company expects nearly 85% of its earnings in 2019 to be fee-based. From these fee-based solutions, the company expects 20% increase in adjusted EBITDA in 2020.

Increase in drilling activities in high productive regions will boost demand for the company’s midstream services. Recently, ONEOK completed few capital growth projects in the Permian Basin, STACK and SCOOP area. Expansion of WesTex Transmission system with 300 MMcf/d capacities was completed in the third quarter. The completion of 150 MMcf/d eastbound and 100 MMcf/d west bound expansions of the ONEOK Gas Transportation System is expected to improve transportation volume.

ONEOK continues to invest in organic growth projects to expand existing operating regions and provide a wider range of services to crude oil as well as natural gas producers and end-use markets. The company expects total growth capital expenditures for 2019 in the range of $3.5-$3.7 billion. A strong cash flow generation capability is enabling the company to strengthen its balance sheet and boost shareholders’ value through dividend payouts. Moreover, ONEOK Partners is the primary growth vehicle of the company. The completion of acquisition of the remaining interest in ONEOK Partners is going to be accretive to distributable cash flow from 2017 through 2021.

However, stringent government regulations and increase in competition in the pipeline business are growth deterrents.

 Zacks Rank & Price Performance

The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 12 months, shares of the company have returned 13% compared with the industry’s growth of 8.5%.

Stocks to Consider

Some better-ranked stocks from the same sector are Atmos Energy Corporation ATO, ONE Gas, Inc OGS and NRG Energy, Inc. NRG. All the three stocks hold a Zacks Rank #2 (Buy).

Long-term earnings growth of Atmos Energy, ONE Gas and NRG Energy is pegged at 7%, 6.1% and 5.5%, 36.8% respectively.

Atmos Energy, ONE Gas and NRG Energy delivered an average positive earnings surprise of 3.18%, 2.45% and 12.64% in the last four quarters, respectively.

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NRG Energy, Inc. (NRG) : Free Stock Analysis Report
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