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ONEOK Partners Evenly Poised

Zacks Equity Research

On May 21, we have issued an updated research report on ONEOK Partners LP (OKS). The midstream operator looks well-positioned for 2014 given its heavy investments primarily directed at liquids and gas gathering and processing infrastructure expansion. For the period 2010-2016, the partnership intends to incur capital spending in the range $6.0–$6.4 billion including investments of $2.02 billion in 2014.

However, commodity price volatilities remain a concern. In addition, strict environmental regulations might act as growth deterrents.

ONEOK Partners, a Zacks Rank #3 (Hold) stock, posted mixed financial results in first-quarter 2014. Quarterly earnings outpaced the Zacks Consensus Estimate while revenues missed the same. On a year-over-year basis, both top and bottom line posted year-over-year increase of 25.6% and 92.9%, respectively. A rise in natural gas transportation revenues, and wider natural gas liquids location as well as product price differentials were the key performance drivers.

Going ahead, the current shale revolution in the U.S. is creating a substantial demand for midstream infrastructures. The spur in upstream activity will likely continue in the coming years. Given the positive fundamentals at work, the partnership’s completion of critical gas gathering and processing and liquids projects as well as development of additional fractionization facilities will bode well for long-term growth.

Moreover, ONEOK Partners’ strong operating cash flow and liquidity positions will enable the partnership to effectively carry out its inorganic expansion programs. The first quarter saw a 155.6% jump in operating cash flow to $0.46 billion from the year- ago figure.

On the flip side, dependence on third parties and government agencies for lands for the construction and operation of the partnership’s pipelines and allied facilities could pose challenges to its development plans. Moreover, the partnership’s failure to renew contracts could affect its future prospects.

Key Picks from the Sector

Other better-ranked midstream players include Delek Logistics Partners, LP (DKL), Boardwalk Pipeline Partners, LP (BWP) and Targa Resources Partners LP (NGLS). All the above stocks currently carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on OKS
Read the Full Research Report on NGLS
Read the Full Research Report on BWP
Read the Full Research Report on DKL

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