On Apr 3, Zacks Investment Research downgraded North American
Williams Companies Inc.
) to a Zacks Rank #5 (Strong Sell) following the stock's recent
gains, which have brought valuation inline with our earlier
CALUMET SPECLTY (CLMT): Free Stock Analysis
NGL ENERGY PART (NGL): Free Stock Analysis
WILLIAMS COS (WMB): Free Stock Analysis
WPX ENERGY INC (WPX): Free Stock Analysis
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With natural gas prices likely to remain soft in the near- to
medium-term, Williams' margins are expected to suffer in the next
few quarters. The company's fairly debt-heavy balance sheet also
remains an issue. Additionally, the transfer of the exploration
and production operations has heightened Williams' risk profile.
Why the Downgrade?
The glut in domestic gas supplies continues with storage levels
remaining above their five-year average. This translates into a
bearish near- to medium-term outlook for natural gas-weighted
firms like Williams Companies, more so after considering the fact
that shares have already risen by approximately 10% during the
We believe that transfer of the upstream assets - into a
separate, independent and publicly traded company
WPX Energy Inc.
) - has left Williams with a less diversified business. As a
result, the business risk profile of the reorganized Williams is
weaker than that of the pre-spin-off company.
Finally, we remain concerned about Williams Companies' high debt
levels, which leave it vulnerable to an extended drop in
commodity prices. As of Dec 31, 2012, Williams had long-term debt
of more than $10.7 billion, representing a debt-to-capitalization
ratio of 69.3%.
As a result of these bearish factors, the tendency for a downward
estimate revision has been more obvious in recent times. In fact,
the Zacks Consensus Estimate for the first quarter has moved down
by 4 cents (or 14%) to 24 cents per share over the last 60 days.
The Zacks Consensus Estimate for the full year is 98 cents, down
19 cents (or 16%) in the same timeframe
Stocks that Warrant a Look
While we expect Williams to perform below its peers and industry
levels in the coming months and see little reason for investors
to own the stock, one can look at
NGL Energy Partners L.P.
Calumet Specialty Products Partners L.P.
) as good buying opportunities. These oil refining and marketing
partnerships - sporting a Zacks Rank #1 (Strong Buy) - have solid
secular growth stories with potential to rise significantly from