We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Williams' Shares Gain 27% YTD: Should You Buy or Wait for Now?
Read MoreHide Full Article
The Williams Companies, Inc. (WMB - Free Report) has seen impressive growth this year, with its shares rising 27% year to date (YTD). This is remarkable, given that the broader oil-energy sector has experienced a 0.7% decline. Williams is one of the biggest names in U.S. natural gas infrastructure, running more than 33,000 miles of pipelines. The company plays a crucial role in moving natural gas from where the gas is produced to where needed, making money by charging fees for its transportation and storage services.
Image Source: Zacks Investment Research
With the stock gaining serious momentum, is it the right time to jump in or should you hold on and wait for a better opportunity? Let us take a look at five reasons to buy and five reasons to hit pause.
Reasons to Buy Williams Stock
Riding High on Momentum: A 27% jump in YTD performance is not a one-time occurrence, this reflects the company’s solid financial performance. In second-quarter 2024, WMB reported an adjusted EBITDA of $1.7 billion, a 3.5% rise from the year-ago quarter’s reported figure. This was driven by positive net contributions from acquisitions and expansion projects. In a market where many energy companies are struggling, this shows consistent strength. If you're looking for momentum, this might be your ticket. Currently, the company carries a Momentum Score of A.
Reliable Dividend Payout: For income-focused investors, WMB has been a dependable choice. The company recently raised its quarterly dividend to $1.90 per share annually, up 6.1%. With a healthy dividend coverage ratio of 2.16x, you can count on steady payouts in the near term. This makes it an appealing pick for those looking to balance growth with reliable income.
Growing Demand for Natural Gas: WMB has been working on several high-profile projects, including the Transco Regional Energy Access and the Louisiana Energy Gateway. These are big deals that should help WMB capture even more market share as demand for natural gas continues to rise.. Recently the company has also announced plans to enhance its natural gas capacity with 12 new projects, set to add approximately 4.2 billion cubic feet per day (bcfd) from 2024 to 2027. This expansion builds on WMB's recent success in completing 17 projects between 2018 and 2023, which collectively added around 5 bcfd.
Steady Revenues Despite Low Gas Prices: One of Williams’ strengths is that it isn’t overly dependent on natural gas prices to generate revenues. Its fee-based business model means the company makes money based on the volume of gas it transports and stores, not the price of the gas. This makes WMB a safer bet compared to companies that rely on volatile gas prices to turn a profit.
Reasons to Wait for Williams Stock
Increasing Operating Costs: WMB has seen a rise in operating costs, partly due to acquisitions and higher maintenance expenses. In second-quarter 2024, net income fell by $146 million compared to the year-ago quarter’s reported figure due to higher interest and depreciation costs. If this trend continues, the company’s bottom line and dividend growth will be hurt.
Regulatory Roadblocks: Big projects mean big scrutiny. WMB has had its fair share of regulatory challenges and is going away anytime soon. The recent DC Circuit Court ruling vacating a key FERC certificate for the Regional Energy Access project shows that the road to expansion isn’t always smooth. If you’re betting on Williams’ growth, know that regulatory delays could throw a wrench in the works.
Exposure to Price Volatility: While Williams' fee-based structure provides some insulation, it isn't completely immune to natural gas price fluctuations. In second-quarter 2024, the company took a $214 million hit due to unfavorable changes in commodity derivatives. If gas prices remain volatile, this could impact future earnings, which may deter more risk-averse investors.
High Debt Levels: WMB Companies' growing debt burden is a concern for investors and restricts its credit profile. In fact, the company's debt to capitalization at the end of June 30, 2024, was 62%, quite high compared to peers. Elevated debt levels increase financial risk and could strain the company's balance sheet, especially if there are adverse market conditions or unexpected operational issues. This financial structure may limit the company's flexibility to invest in new growth opportunities or weather economic downturns
Intense Competition: The U.S. midstream sector, where WMB operates, is highly competitive. As other companies expand pipelines and infrastructure, WMB could face pressure on its margins. Staying ahead in this space will require continued investment and efficiency, and there’s always the risk that competitors could gain ground.
The Verdict
WMB has had an incredible run this year, thanks to strong demand for natural gas and solid financial performance. The company’s reliable dividend, combined with its steady growth projects, makes WMB a great option for long-term investors who are looking for both income and growth.
However, potential risks, including rising costs, regulatory challenges and a high debt burden, could impact performance. Of the 21 brokers covering WMB stock, eight have Strong Buy recommendations, two have Buy recommendations, one has Strong Sell recommendations and ten have Hold ratings.
Investors are advised to be cautious. Instead of rushing to add WMB, carrying a Zacks Rank #3 (Hold), to their portfolios, it may be prudent to wait for a more opportune entry point.
Houston, TX-based Vaalco Energy is valued at $568.51 million. The oil and gas exploration and production company currently pays a dividend of 25 cents per share, or 4.56%, on an annual basis. EGY is an independent energy company principally engaged in the acquisition, exploration, development and production of crude oil and natural gas.
Core Laboratories is valued at $829.89 million. The company currently pays a dividend of 4 cents per share, or 0.23%, on an annual basis. Netherlands-based CLB is an oilfield services company, operating in more than 50 countries. The firm deals with providing reservoir management and production enhancement services to oil and gas companies.
Findlay, OH-based MPLX LP is valued at $43.5 billion. In the past year, its shares have risen 16.1%. MPLX owns and operates midstream energy infrastructure and logistics assets in the United States. It operates under two segments, namely Logistics and Storage, and Gathering and Processing.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Williams' Shares Gain 27% YTD: Should You Buy or Wait for Now?
The Williams Companies, Inc. (WMB - Free Report) has seen impressive growth this year, with its shares rising 27% year to date (YTD). This is remarkable, given that the broader oil-energy sector has experienced a 0.7% decline. Williams is one of the biggest names in U.S. natural gas infrastructure, running more than 33,000 miles of pipelines. The company plays a crucial role in moving natural gas from where the gas is produced to where needed, making money by charging fees for its transportation and storage services.
Image Source: Zacks Investment Research
With the stock gaining serious momentum, is it the right time to jump in or should you hold on and wait for a better opportunity? Let us take a look at five reasons to buy and five reasons to hit pause.
Reasons to Buy Williams Stock
Riding High on Momentum: A 27% jump in YTD performance is not a one-time occurrence, this reflects the company’s solid financial performance. In second-quarter 2024, WMB reported an adjusted EBITDA of $1.7 billion, a 3.5% rise from the year-ago quarter’s reported figure. This was driven by positive net contributions from acquisitions and expansion projects. In a market where many energy companies are struggling, this shows consistent strength. If you're looking for momentum, this might be your ticket. Currently, the company carries a Momentum Score of A.
Reliable Dividend Payout: For income-focused investors, WMB has been a dependable choice. The company recently raised its quarterly dividend to $1.90 per share annually, up 6.1%. With a healthy dividend coverage ratio of 2.16x, you can count on steady payouts in the near term. This makes it an appealing pick for those looking to balance growth with reliable income.
Growing Demand for Natural Gas: WMB has been working on several high-profile projects, including the Transco Regional Energy Access and the Louisiana Energy Gateway. These are big deals that should help WMB capture even more market share as demand for natural gas continues to rise.. Recently the company has also announced plans to enhance its natural gas capacity with 12 new projects, set to add approximately 4.2 billion cubic feet per day (bcfd) from 2024 to 2027. This expansion builds on WMB's recent success in completing 17 projects between 2018 and 2023, which collectively added around 5 bcfd.
Steady Revenues Despite Low Gas Prices: One of Williams’ strengths is that it isn’t overly dependent on natural gas prices to generate revenues. Its fee-based business model means the company makes money based on the volume of gas it transports and stores, not the price of the gas. This makes WMB a safer bet compared to companies that rely on volatile gas prices to turn a profit.
Reasons to Wait for Williams Stock
Increasing Operating Costs: WMB has seen a rise in operating costs, partly due to acquisitions and higher maintenance expenses. In second-quarter 2024, net income fell by $146 million compared to the year-ago quarter’s reported figure due to higher interest and depreciation costs. If this trend continues, the company’s bottom line and dividend growth will be hurt.
Regulatory Roadblocks: Big projects mean big scrutiny. WMB has had its fair share of regulatory challenges and is going away anytime soon. The recent DC Circuit Court ruling vacating a key FERC certificate for the Regional Energy Access project shows that the road to expansion isn’t always smooth. If you’re betting on Williams’ growth, know that regulatory delays could throw a wrench in the works.
Exposure to Price Volatility: While Williams' fee-based structure provides some insulation, it isn't completely immune to natural gas price fluctuations. In second-quarter 2024, the company took a $214 million hit due to unfavorable changes in commodity derivatives. If gas prices remain volatile, this could impact future earnings, which may deter more risk-averse investors.
High Debt Levels: WMB Companies' growing debt burden is a concern for investors and restricts its credit profile. In fact, the company's debt to capitalization at the end of June 30, 2024, was 62%, quite high compared to peers. Elevated debt levels increase financial risk and could strain the company's balance sheet, especially if there are adverse market conditions or unexpected operational issues. This financial structure may limit the company's flexibility to invest in new growth opportunities or weather economic downturns
Intense Competition: The U.S. midstream sector, where WMB operates, is highly competitive. As other companies expand pipelines and infrastructure, WMB could face pressure on its margins. Staying ahead in this space will require continued investment and efficiency, and there’s always the risk that competitors could gain ground.
The Verdict
WMB has had an incredible run this year, thanks to strong demand for natural gas and solid financial performance. The company’s reliable dividend, combined with its steady growth projects, makes WMB a great option for long-term investors who are looking for both income and growth.
However, potential risks, including rising costs, regulatory challenges and a high debt burden, could impact performance. Of the 21 brokers covering WMB stock, eight have Strong Buy recommendations, two have Buy recommendations, one has Strong Sell recommendations and ten have Hold ratings.
Investors are advised to be cautious. Instead of rushing to add WMB, carrying a Zacks Rank #3 (Hold), to their portfolios, it may be prudent to wait for a more opportune entry point.
Key Picks
Investors interested in the energy sector might look at some better-ranked stocks like VAALCO Energy, Inc. (EGY - Free Report) , Core Laboratories Inc. (CLB - Free Report) and MPLX LP (MPLX - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Houston, TX-based Vaalco Energy is valued at $568.51 million. The oil and gas exploration and production company currently pays a dividend of 25 cents per share, or 4.56%, on an annual basis. EGY is an independent energy company principally engaged in the acquisition, exploration, development and production of crude oil and natural gas.
Core Laboratories is valued at $829.89 million. The company currently pays a dividend of 4 cents per share, or 0.23%, on an annual basis. Netherlands-based CLB is an oilfield services company, operating in more than 50 countries. The firm deals with providing reservoir management and production enhancement services to oil and gas companies.
Findlay, OH-based MPLX LP is valued at $43.5 billion. In the past year, its shares have risen 16.1%. MPLX owns and operates midstream energy infrastructure and logistics assets in the United States. It operates under two segments, namely Logistics and Storage, and Gathering and Processing.