ONEOK (OKE): A Comprehensive Analysis of Its Fair Market Value
ONEOK (NYSE:OKE), despite a daily loss of 1.62%, has seen a 3-month gain of 6.06%. With an Earnings Per Share (EPS) of 5.42, the question arises: is the stock fairly valued? This article aims to provide an in-depth analysis of ONEOK's valuation, encouraging readers to delve into the subsequent financial assessment.
Introduction to ONEOK Inc (NYSE:OKE)
ONEOK provides natural gas gathering, processing, storage, and transportation as well as natural gas liquids transportation and fractionation. It owns extensive assets in the midcontinent, Permian, and Rocky Mountain regions. With a current stock price of $63.84 and a GF Value of $62.84, the stock appears to be fairly valued. This valuation is based on a comparison of the stock's price with its intrinsic value, estimated using GuruFocus' proprietary GF Value method.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
ONEOK (NYSE:OKE) appears to be fairly valued according to GuruFocus' valuation method. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. With a market cap of $37.20 billion, ONEOK's current price of $63.84 per share suggests that the stock is fairly valued.
As ONEOK is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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ONEOK's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review a company's financial strength before deciding to buy its stock. A good starting point is to look at the cash-to-debt ratio and interest coverage. ONEOK has a cash-to-debt ratio of 0.01, which is worse than 95.45% of 1034 companies in the Oil & Gas industry. GuruFocus ranks ONEOK's overall financial strength at 5 out of 10, indicating that its financial strength is fair.
ONEOK's Profitability and Growth
Investing in profitable companies is less risky, especially those with consistent profitability over the long term. A company with high profit margins is usually a safer investment than those with low profit margins. ONEOK has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $19.20 billion and Earnings Per Share (EPS) of $5.42. Its operating margin is 19.22%, which ranks better than 66.16% of 984 companies in the Oil & Gas industry. Overall, ONEOK's profitability is ranked 8 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of ONEOK is 26.8%, which ranks better than 80.16% of 862 companies in the Oil & Gas industry. However, the 3-year average EBITDA growth rate is 7.9%, which ranks worse than 59.28% of 830 companies in the Oil & Gas industry.
ONEOK's ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, ONEOK's ROIC was 12.19, while its WACC came in at 9.51.
Conclusion
Overall, ONEOK (NYSE:OKE) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 59.28% of 830 companies in the Oil & Gas industry. To learn more about ONEOK stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
