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ONEOK (OKE) Gains From Expansion Efforts, Fee-Based Earnings

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·3 min read
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ONEOK, Inc. OKE is well-poised to gain from improved fee-based earnings and midstream assets located in the higher productive regions. Its clean energy goals are a tailwind.

The Zacks Consensus Estimate for OKE’s 2021 earnings is pegged at $3.39 per share, suggesting growth of 138.73% from the year-ago reported figure. The consensus mark for revenues stands at $17.42 billion, indicating an increase of 103.97% from the prior-year reported number. The long-term (three to five years) earnings growth rate of ONEOK is 7.86%.

What’s Aiding the Stock?

ONEOK is well-positioned to benefit from long-term fee-based commitments to its Natural Gas Gathering and Processing, and Natural Gas Liquids segments. In fact, OKE reported more than 90% of its earnings as fee-based in 2020.

The utility continues to invest in organic growth projects for expansion in the existing operating regions and also provides a broad range of services to crude oil and natural gas producers as well as the end-use markets.Capital expenditures are expected in the band of $525-$675 million for 2021 and OKE will also benefit from contribution of the organic projects completed in 2020.

As no single customer contributes more than 10% to ONEOK’s total revenues, this gives stability to its top line. In fact, the loss of one customer is not going to affect OKE’s overall performance.

ONEOK is making efforts to lower emission from its operations. In September, OKE announced plans to reduce Scope 1 and Scope 2 greenhouse gas (GHG) emissions by 30% from the 2019 levels of 7.2 million metric tons (MMT). OKE aims to curb emission by 2.2 MMT within 2030.

Other utilities are also adopting measures to cut emissions. UGI Corp. UGI disposed its 5.97% ownership interest in the Conemaugh coal-fired generating station in fiscal 2020 to reduce the total Scope I direct emissions by more than 30%. In May 2021, UGI announced plans to trim Scope I GHG Emissions by 55% within 2025.

Another utility MDU Resources MDU retired Lewis & Clark coal facilities in March 2021 and will further retire Hesket I & II coal-fired stations in early 2022.

Atmos Energy ATO aims at reducing methane emissions 10-15% in five years from the current levels. UGI also looks to lower methane emissions 50% within 2035 from the 2017 levels.

The long-term earnings growth rate for UGI, MDU and ATO is pegged at 8%, 6.70% and 7.27% each. Earnings surprise delivered by UGI, MDU and ATO in the last four quarters is 2.36%, 3.47% and 6.46%, respectively, on average.

Headwinds

Stringent government regulations and intense competition in ONEOK’s pipeline business are potential growth deterrents. Also, OKE does not own all the land on which its pipelines are located, which maximizes the risk of incurring heavy expenses to maintain necessary land use.


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