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Williams Companies' Midstream Assets Bode Well; Debt High - Analyst Blog

Zacks Equity Research

On Jan 14, 2015, we issued an updated research report on North American energy firm, Williams Companies Inc. (WMB). The midstream assets of the company are less sensitive to commodity prices, which should favor investors amid low gas and oil prices. However, we remain concerned as the company has a high debt burden, which might restrict its near-term growth prospects. These are reflected in Williams Companies’ current Zacks Rank #3 (Hold).  

By virtue of their less vulnerability to low commodity prices, the midstream properties of Williams help it to maintain a steady stream of revenues and cash flow. Furthermore, Williams is poised to benefit from the rebound in industrial activity, which would include increased natural gas demand in the form of natural gas liquids.

Williams also has a strong commitment to enhance shareholder value. This is evident from the company’s fourth-quarter 2014 dividend payout of 57 cents per share, which was 50% higher than the year-ago quarter. Moreover, the company’s dividend for 2014 is $1.96 per share, up 36% from $1.44 paid out in 2013.

Last year, Williams completed the purchase of the remaining 50% GP interest and 55.1 million LP units in Access Midstream Partners LP – thereby having full GP ownership and 50% LP interest in the Oklahoma City-based partnership. We believe that with the acquisition, Williams has significantly improved its transportation and midstream businesses as Access Midstream holds a strong portfolio of natural gas pipelines and gathering assets in the Marcellus, Barnett, Utica, Haynesville, Eagle Ford, Mid-continent and Niobrara shale regions.

However, we remain concerned about Williams’ high debt levels, which make it vulnerable to an extended drop in commodity prices. As of Sep 30, 2014, the company had long-term debt of almost $20 billion, representing a debt-to-capitalization ratio of 69.6%.  

Key Picks in the Energy Sector

Better-ranked players in the energy sector include Seadrill Partners LLC (SDLP), Enbridge Energy Management LLC (EEQ) and Cheniere Energy Partners LP (CQP). Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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WILLIAMS COS (WMB): Free Stock Analysis Report
ENBRIDGE ENERGY (EEQ): Free Stock Analysis Report
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