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Zacks Industry Outlook Highlights: Kinder Morgan, Williams Companies, and MPLX

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·8 min read
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For Immediate Release

Chicago, IL – January 10, 2022 – Today, Zacks Equity Research discusses Kinder Morgan, Inc. KMI, The Williams Companies Inc WMB and MPLX LP MPLX.

Industry: Oil - Pipelines

Link: https://www.zacks.com/commentary/1848913/3-oil-pipeline-stocks-to-gain-on-the-prospering-industry

The midstream energy activity has a significantly lower exposure to coronavirus-induced energy business uncertainty due to the very nature of the business model. Hence, despite Omicron spreading rapidly worldwide, the outlook for the Zacks Oil and Gas - Production & Pipelines industry is bright.

Pipeline players are better off than upstream and downstream firms since the companies are generating stable fee-based revenues from their long-term contracts with shippers. Kinder Morgan, Inc.The Williams Companies Inc and MPLX LP are among the frontrunners in the industry that are leading the pack.

About the Industry

The Zacks Oil and Gas - Production & Pipelines industry comprises companies that own and operate midstream energy infrastructure assets. The properties consist of extensive pipeline networks that transport crude oil, liquids and natural gas. The midstream energy players are also involved in processing and storing natural gas. The companies have interests in natural gas distribution utilities, serving millions of retail customers across North America. Some companies are ramping up investments in renewable energy and power transmission businesses. The firms invested in wind farms, solar energy operations, geothermal projects and hydroelectric facilities. Thus, with a diversified portfolio of renewable energy projects, the midstream companies have room to generate extra cash flows in addition to stable fee-based revenues from the transportation and storage assets.

What's Shaping the Future of Oil & Gas - Production and Pipelines Industry?

Pipeline Demand to Improve: Although Omicron is spreading speedily across the world, most analysts expect the effect of this coronavirus variant to be mild. OPEC and its non-OPEC allies, collectively called OPEC+, reassured a limited Omicron impact on the energy business, leading to a rally in energy stocks. The bullish outlook for energy business is also getting reflected in favorable commodity prices, paving the way for exploration, production and drilling activities to continue to improve. This, in turn, will increase production volumes, improving demand for the pipeline and storage assets.

Stable Fee-Based Revenues: Most pipeline and storage assets are being booked by shippers for a long term, making midstream business less vulnerable to coronavirus-induced volatility in commodity prices. Backed by long-term contracts, the companies belonging to the industry are also having a minimal oil and gas volume risk. Owing to these factors, pipeline players will continue to generate stable fee-based revenues.

Impressive Project Backlog: Many pipeline companies in the industry have a huge backlog of growth projects worth billions of dollars. The projects are going to come online in a few years, securing additional cashflows for the pipeline players.

Attractive Dividend Yield: Oil and gas pipeline stocks are paying attractive dividend yields. Compared to the overall energy sector, companies belonging to the industry as a whole have been rewarding their shareholders with significantly higher dividend yields over the past few years, providing reassurance that the midstream business is relatively more stable than upstream and downstream operations.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Oil and Gas - Production & Pipelines is a 13-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #74, which places it in the top 29% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates rosy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries results from a positive earnings outlook for the constituent stocks in aggregate. Before we present a few stocks that you may want to consider, let’s look at the industry’s recent stock-market performance and its valuation picture.

Industry Lags Sector & S&P 500

The Zacks Oil and Gas - Production & Pipelines has lagged both the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.

The industry has risen 14.9% over this period compared with the 20.7% and 23.4% improvement of the broader sector and the S&P 500, respectively.

Industry's Current Valuation

Based on the trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing oil and gas production & pipeline stocks, the industry is currently trading at 12.65X, lower than the S&P 500’s 15.81X. It is, however, above the sector’s trailing-12-month EV/EBITDA of 4.58X.

Over the past five years, the industry has traded as high as 18.91X, as low as 8.59X and at a median of 13.52X.

3 Oil & Gas Pipeline Stocks Leading the Pack

MPLX LP:MPLX generates stable cashflows and has lower exposure to commodity price volatility since it is the operator of midstream energy infrastructure and logistics assets. MPLX LP also generates cashflows from relatively stable fuels distribution business.

Over the past 60 days, MPLX has witnessed upward earnings estimate revisions for 2021 and 2022, respectively. MPLX, currently carrying a Zacks Rank #2 (Buy), has attractive organic growth capital projects and is also pursuing low carbon opportunities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Kinder Morgan: With its operating interests in oil and gas pipeline networks, spread across 83,000 miles, Kinder Morgan is a leading energy infrastructure company in North America. KMI generates most of its earnings from take-or-pay contracts, thereby generating stable fee-based revenues.

Kinder Morgan currently has a Zacks Rank #3 (Hold) and gained 17.5% in the past year. KMI is poised to grow more on the back of its business model, which is relatively resilient to volume and commodity price risks.

The Williams Companies Inc: The Williams Companies is well poised to capitalize on mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.

With its pipeline networks spread across more than 30,000 miles, The Williams Companies connects premium basins in the United States to the key market. With a Zacks Rank of 2 at present, WMB’s assets can fulfill 30% of the nation’s natural gas consumption, utilized for heating purposes and clean-energy generations.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.

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