We reiterate our Neutral recommendation on
). The company's first quarter results lagged the Zacks Consensus
Estimate as well as the year-ago quarter earnings. This was
primarily due to a continuous decline in natural gas prices and
lower margins at the Energy Services segment related to lower
natural gas storage price differentials.
Businesses dealing with natural gas processing and allied
services are weather sensitive and seasonal in nature. ONEOK might
face this kind of a challenge in the future. Weather conditions
directly influence the volume of natural gas delivered to
customers. This may also impact the company's financial performance
in the future.
We have observed that ONEOK's growth in the last couple of years
stems primarily from its ability to acquire assets and integrate
them successfully. We believe that ONEOK's strong cash balance of
$781.2 million in the first quarter of 2012 encourages it to pursue
asset optimization and expansion, either organically or
inorganically. ONEOK also evaluates its existing facilities and
frequently divests non-core assets at favorable prices.
We believe the construction of the new 1,300-mile Bakken Crude
Express Pipeline is expected to strengthen its pipeline
portfolio. The installation of this new pipeline provides
ONEOK with a reliable and cost-effective means of transportation
compared to other alternatives. It is expected to act as the
company's future growth platform with strong economic feasibility
to provide superior services from producers to refiners.
On the flip side, ONEOK's operations are subject to several
federal and state legislative requirements, as well as extensive
environmental regulations. The utility regulatory authorities
control many aspects of the company's utility operations, including
rates charged to customers. The company's future profitability
depends largely on its ability to recover escalated costs by
obtaining the required regulatory approvals.
During the earnings announcement, ONEOK reaffirmed its net
income guidance for 2012 in the range of $360 million to $410
million. The Zacks Consensus Estimates for second quarter and full
year 2012 earnings are pegged at 35 cents and $1.78 per share,
ONEOK Inc. currently retains a Zacks #3 Rank (short-term Hold
Based in Tulsa, Oklahoma, ONEOK Inc. is a diversified energy
company, operating as a natural gas distributor primarily in the
United States. The company competes with
OGE Energy Corporation
OGE ENERGY CORP (OGE): Free Stock Analysis
ONEOK INC (OKE): Free Stock Analysis Report
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