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ONEOK's (OKE) Expansion Efforts & Fee-Based Earnings Bode Well

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Zacks Equity Research
·3 min read
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ONEOK, Inc. OKE is poised to benefit from the ONEOK Partners acquisition, increased fee-based earnings and midstream assets located in productive and resource-rich regions.

The Zacks Consensus Estimate for the company’s 2020 and 2021 earnings has moved 1.5% and 4.5% north, respectively, in the past days.

What’s Aiding the Stock?

ONEOK is well-placed to gain from long-term fee-based commitments in its Natural Gas Gathering and Processing, and Natural Gas Liquids segments. The company anticipates 90% of its current-year earnings to be fee-based.

It continues to invest in organic growth projects for expanding in the existing operating regions and providing a broad range of services to crude oil and natural gas producers as well as the end-use markets. Amid the unprecedented economic crisis due to the pandemic, the company took initiatives to preserve its liquidity.

Moreover, ONEOK Partners is the primary growth vehicle of ONEOK and the completion of this buyout is likely to be accretive to its distributable cash flow from 2017 through 2021. Further, the company’s strong cash flow generation capacity is helping it strengthen its balance sheet and add shareholder value.

Woes

However, rigid government rules and intensifying competition in the pipeline business are potential growth deterrents. Also, the company’s persistently rising long-term debt remains a concern.

Zacks Rank & Price Performance

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past six months, shares of the company have gained 30.6%, outperforming the industry’s 6.3% growth.

Stocks to Consider

A few better-ranked utilities are PNM Resources, Inc. PNM, Otter Tail Corporation OTTR and Portland General Electric Company POR, all carrying a Zacks Rank #2 (Buy) at present.

PNM Resourceshas a long-term (three to five years) earnings growth rate of 4.87%. Its average earnings surprise in the last four quarters is 9.27%.

Otter Tail pulled off an earnings surprise of 9.93%, on average, in the previous four quarters.The Zacks Consensus Estimate for 2020 earnings has been revised 1.8% upward in the past 60 days.

Portland General Electric Company has a long-term earnings growth rate of 5.48%. It delivered a trailing four-quarter earnings surprise of 98.07%, on average.

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