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Transco Expansion Projects to Aid Williams (WMB) Q4 Earnings

Nilanjan Choudhury

We expect The Williams Companies, Inc. WMB to beat expectations when it reports fourth-quarter 2018 results after the closing bell on Wednesday, Feb 13. The current Zacks Consensus Estimate for the quarter under review is a profit of 22 cents per share on revenues of $2.5 billion.

In the preceding three-month period, the Tulsa, OK-based energy infrastructure provider beat the consensus mark by 33.3% as higher volumes in the Northeast and Transco expansion projects led to increase in service revenues.

As far as earnings surprises are concerned, the midstream player has a good record, having gone past/met the Zacks Consensus Estimate thrice in the last four reports. This is depicted in the graph below.

Williams Companies, Inc. (The) Price and EPS Surprise

Williams Companies, Inc. (The) Price and EPS Surprise | Williams Companies, Inc. (The) Quote

Investors are keeping their fingers crossed and hoping that the company can continue winning ways by surpassing earnings estimate this time around too. Thankfully, our model indicates that Williams might beat on earnings in the fourth quarter.

Let’s delve deeper and find out the factors impacting the results.

Why a Likely Positive Surprise?

Our proven model shows that Williams is likely to beat the Zacks Consensus Estimate this quarter as it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and Zacks Rank #3 (Hold) or higher for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +10.08%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Williams currently has a Zacks Rank of 3, which, when combined with a positive ESP, makes us confident of earnings beat. 

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

What is Driving the Better-Than-Expected Earnings?

Williams’ ‘Atlantic-Gulf’ and ‘Northeast G&P’ segments — which collectively represents around 65% of the company’s adjusted EBITDA — could post strong results in the upcoming quarter. This would magnify Williams’ chances of notching up a quarterly beat.

Thanks to the expansion projects around Transco (the country's largest gas transmission system and Williams’ core project) being placed into service in over the past two years and the additional volumes from these takeaway infrastructures on the back of record drilling activity, the company is likely to experience continued strength in revenues. In particular, the completion of the Atlantic Sunrise project – the biggest expansion project in the history of Transco – is expected to provide substantial incremental fee-based revenue and drive EBITDA growth.

On the other hand, the Northeast G&P unit is set to benefit from higher volumes triggered by rising natural gas production from Marcellus and Utica shales.

Other Stocks to Consider

Williams is not the only energy company looking up this earnings season. Here are some firms from the space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:

Sunoco LP SUN has an Earnings ESP of +1.56% and a Zacks Rank #1 (Strong Buy). The partnership is slated to release earnings on Feb 20. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Concho Resources Inc. CXO has an Earnings ESP of +2.97% and a Zacks Rank #3. The company is slated to release earnings on Feb 19.

Diamondback Energy, Inc. FANG has an Earnings ESP of +1.29% and a Zacks Rank #3. The company is slated to release earnings on Feb 19.

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