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ONEOK (OKE) Rides on Midstream Assets & Fee-Based Earnings
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ONEOK Inc. (OKE - Free Report) stands to benefit from higher fee-based earnings and midstream assets located in productive regions. The company also continues to gain from a diverse customer base.
However, this Zacks Rank #2 (Buy) company faces risks related to intense competition in the pipeline business.
Tailwinds
With production volumes resuming normalcy, ONEOK is poised to benefit from long-term fee-based commitments in each of its three segments. More than 86% of OKE’s 2023 earnings were fee-based, and it expects more than 90% of its 2024 revenues to be so.
The company is expanding its operations through inorganic initiatives. After acquiring Magellan Midstream Partners, L.P. in September 2023, it agreed to acquire a system of NGL pipelines from Easton Energy for nearly $280 million in May 2024.
This acquisition is aimed at providing the quickest pipeline connectivity to and within the critical supply and demand centers for its NGL, refined products and crude oil assets in the Gulf Coast. These strategic acquisitions are expected to produce considerable cost savings and synergies, enhancing the profitability of the company.
ONEOK also continues to invest in organic growth projects to expand in the existing operating regions and provide a broad range of services to crude oil as well as natural gas producers and end-use markets. Total capital expenditures for the first quarter of 2024 were $512 million, up 77.2% year over year. The company expects capital expenditures to be in the range of $1.75-$1.95 billion in 2024.
Headwinds
The natural gas and natural gas liquids pipeline operators are expected to remain highly competitive. Apart from the existing pipeline companies, this midstream section has recently seen many energy companies forming master limited partnerships to begin pipeline services. Although OKE’s assets are well spread out, its ability to withstand competitive challenges will depend on the efficiency, quality and reliability of its services.
Some of its operations are highly seasonal and revenues from such operations may fluctuate from period to period.
Price Performance
In the past three months, shares of the company have risen 10.4% compared with the industry’s 7.7% growth.
Constellation Energy has a long-term (three to five year) earnings growth rate of 14.6%. The Zacks Consensus Estimate for CEG’s 2024 earnings per share (EPS) indicates an increase of 52.7% year over year.
DVN’s long-term earnings growth rate is 7.22%. It delivered an average earnings surprise of 3.4% in the last four quarters.
The Zacks Consensus Estimate for PAA’s 2024 sales indicates an improvement of 4.3% year over year. The firm delivered an average earnings surprise of 20.1% in the last four quarters.
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ONEOK (OKE) Rides on Midstream Assets & Fee-Based Earnings
ONEOK Inc. (OKE - Free Report) stands to benefit from higher fee-based earnings and midstream assets located in productive regions. The company also continues to gain from a diverse customer base.
However, this Zacks Rank #2 (Buy) company faces risks related to intense competition in the pipeline business.
Tailwinds
With production volumes resuming normalcy, ONEOK is poised to benefit from long-term fee-based commitments in each of its three segments. More than 86% of OKE’s 2023 earnings were fee-based, and it expects more than 90% of its 2024 revenues to be so.
The company is expanding its operations through inorganic initiatives. After acquiring Magellan Midstream Partners, L.P. in September 2023, it agreed to acquire a system of NGL pipelines from Easton Energy for nearly $280 million in May 2024.
This acquisition is aimed at providing the quickest pipeline connectivity to and within the critical supply and demand centers for its NGL, refined products and crude oil assets in the Gulf Coast. These strategic acquisitions are expected to produce considerable cost savings and synergies, enhancing the profitability of the company.
ONEOK also continues to invest in organic growth projects to expand in the existing operating regions and provide a broad range of services to crude oil as well as natural gas producers and end-use markets. Total capital expenditures for the first quarter of 2024 were $512 million, up 77.2% year over year. The company expects capital expenditures to be in the range of $1.75-$1.95 billion in 2024.
Headwinds
The natural gas and natural gas liquids pipeline operators are expected to remain highly competitive. Apart from the existing pipeline companies, this midstream section has recently seen many energy companies forming master limited partnerships to begin pipeline services. Although OKE’s assets are well spread out, its ability to withstand competitive challenges will depend on the efficiency, quality and reliability of its services.
Some of its operations are highly seasonal and revenues from such operations may fluctuate from period to period.
Price Performance
In the past three months, shares of the company have risen 10.4% compared with the industry’s 7.7% growth.
Image Source: Zacks Investment Research
Other Stocks to Consider
Some other top-ranked stocks for investors interested in the same sector are Constellation Energy Corporation (CEG - Free Report) , Devon Energy (DVN - Free Report) and Plains All American Pipeline (PAA - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Constellation Energy has a long-term (three to five year) earnings growth rate of 14.6%. The Zacks Consensus Estimate for CEG’s 2024 earnings per share (EPS) indicates an increase of 52.7% year over year.
DVN’s long-term earnings growth rate is 7.22%. It delivered an average earnings surprise of 3.4% in the last four quarters.
The Zacks Consensus Estimate for PAA’s 2024 sales indicates an improvement of 4.3% year over year. The firm delivered an average earnings surprise of 20.1% in the last four quarters.