ONEOK (OKE)'s True Worth: A Complete Analysis of Its Market Value
ONEOK Inc (NYSE:OKE) recently recorded a daily gain of 1.29%, with a 3-month gain of 2.46%. The company's Earnings Per Share (EPS) stands at 5.42. But is the stock fairly valued? This article seeks to answer that question by delving into ONEOK's valuation analysis. Keep reading to gain a comprehensive understanding of the company's intrinsic value.
Company Introduction
ONEOK Inc (NYSE:OKE) is a prominent player in the natural gas industry, providing gathering, processing, storage, and transportation services. The company also handles natural gas liquids transportation and fractionation. With extensive assets in the midcontinent, Permian, and Rocky Mountain regions, ONEOK has managed to carve out a significant market presence. Comparing the stock price with the GF Value, an estimation of fair value, provides a clear snapshot of the company's value. This comparison is crucial in understanding whether the stock is overvalued, undervalued, or fairly valued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
ONEOK (NYSE:OKE) appears to be fairly valued based on GuruFocus' valuation method. The GF Value estimates the stock's fair value at $62.45, considering historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $62.14 per share, ONEOK has a market cap of $36.20 billion and seems to be fairly valued.
Because 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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Financial Strength of ONEOK
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. The cash-to-debt ratio and interest coverage are great ways to understand a company's financial strength. ONEOK, with a cash-to-debt ratio of 0.01, ranks worse than 95.62% of 1028 companies in the Oil & Gas industry. The overall financial strength of ONEOK is 5 out of 10, indicating that the financial strength of ONEOK is fair.
Profitability and Growth of ONEOK
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. 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 66.36% of 981 companies in the Oil & Gas industry. Overall, the profitability of ONEOK is ranked 8 out of 10, indicating strong profitability.
Growth is an important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of ONEOK is 26.8%, which ranks better than 80.09% of 859 companies in the Oil & Gas industry. However, the 3-year average EBITDA growth rate is 7.9%, which ranks worse than 59.69% of 826 companies in the Oil & Gas industry.
ROIC vs. WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, ONEOK's ROIC is 12.19, and its WACC is 9.54.
Conclusion
In conclusion, the stock of ONEOK (NYSE:OKE) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 59.69% of 826 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.
