On Feb 7, 2013, we downgraded our recommendation on energy
) to Underperform from Neutral. The company currently has a Zacks
Rank #5 (Strong Sell).
Why the Downgrade?
The combined negative impact from the sudden discontinuation of
ONEOK's Bakken Crude Express Pipeline project, stringent utility
regulations, volatile commodity prices, risks from the local
distribution companies, unstable credit and capital markets as
well as over dependence on weather conditions forced us to
downgrade our recommendation on the stock.
Causes for Concern
ONEOK discontinued its Bakken Crude Express Pipeline project due
to weak crude oil demand in the region. The company had already
invested a substantial amount in this project and intended to
deploy $1.5-$1.8 billion till its completion in the middle of
2015. We expect closure of this project to impact the financials
of the company adversely.
Utility providers like ONEOK follow a number of regulations
related to customer service and the rates charged to customers,
as well as the extensive environmental rules. Utilities generally
invest considerable amounts to follow these guidelines. ONEOK's
profitability depends primarily on its ability to realize the
costs for providing energy and other commodities to customers by
obtaining the required regulatory approvals.
In addition, ONEOK's business and demand of products,
particularly propane, is weather sensitive. This seasonality
along with variations in weather conditions may cause disparity
in the company's financial results.
Other Stocks to Consider
Apart from ONEOK, Inc., other energy companies
Clean Energy Fuels Corp.
The Laclede Group, Inc.
), are currently performing well and carry a Zacks Rank #2
CLEAN EGY FUELS (CLNE): Free Stock Analysis
LACLEDE GRP INC (LG): Free Stock Analysis
ONEOK INC (OKE): Free Stock Analysis Report
SEMPRA ENERGY (SRE): Free Stock Analysis
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