ONEOK's High-Return Expansion Projects Prompt Jefferies To Add To 'Franchise Picks'

ONEOK, Inc. (NYSE: OKE), a mid-stream service provider, has solidified its competitive position by advancing high-return expansions of its dominant Midcon natural gas liquids system, an analyst at Jefferies said.

The Analyst

Jefferies analyst Christopher Sighinolfi upgraded ONEOK from Hold to Buy and increased his price target from $56 to $67. The analyst also added the stock to his franchise picks.

The Thesis

Since June 2017, ONEOK has added $4.2 billion in Bakken/Midcon NGL expansion, while also placing more than $1.6 billion in equity capital, Sighinolfi said in a note.

"We believe OKE can achieve target build multiples (4-6x EBITDA) in 2-3 years, underpinning its dividend growth & leverage goals while mitigating M&A risks," the analyst said.

The investments, according to the analyst, fortifies the company's existing entry barriers against competition.

Sighinolfi sees upside to ONEOK forecasts, as pipeline integrity concerns may necessitate Bakken ethane recovery sooner than economics alone would suggest. The re-emergence of location pricing spreads could also present an incremental source of cash flow for ONEOK, the analyst said.

Jefferies sees possibility of an export project to address potential LPG/C2 imbalance. That said, the firm believes ONEOK could pursue exports only if long-term fee-based contracts underpin the economics.

"A recent mgmt meeting leaves us confident in its ability to hit target returns on $4.2B of current projects, providing a path to ~10% 2018-22 EPS & DPS CAGRs," Sighinolfi said.

Price Action

ONEOK shares are up about 10 percent over the past year. At last check, shares were up 2 percent to $57.65.

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Latest Ratings for OKE

Mar 2018	Jefferies	Upgrades	Hold	Buy
Mar 2018	UBS	Maintains	Buy	Buy
Feb 2018	Stifel Nicolaus	Maintains	Hold	Hold

View More Analyst Ratings for OKE
View the Latest Analyst Ratings

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