ONEOK Benefits From Strategic Acquisitions & Fee-Based Earnings
ONEOK Inc. OKE 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.
OKE’s Tailwinds
With production volumes resuming normalcy, ONEOK is poised to benefit from long-term fee-based commitments in all three of its segments. The company expects more than 90% of 2024 revenues to be fee-based.
ONEOK has witnessed more than 15% growth in adjusted EBITDA during the past 10 years and continues to expect the same in the future. The company has raised its expectation for adjusted EBITDA to the band of $6.53-$6.73 billion from the previously guided range of $6.03-$6.33 billion. As production volumes continue to improve in its service areas, OKE expects to perform better in the long run.
In October 2024, ONEOK completed the acquisition of Medallion Midstream from Global Infrastructure Partners for a total cash consideration of nearly $2.6 billion. This acquisition further diversifies ONEOK's asset portfolio and adds an expansive and well-connected crude oil gathering system to its Permian Basin platform. The company’s strategic acquisitions are expected to produce considerable cost savings and synergies, further enhancing its profitability.
Over the past five years, Natural Gas Liquid volumes from the Rocky Mountain region have grown at more than 20% annual rate and natural gas processing volumes have increased at a 10% annual growth rate.
Headwinds for OKE
The natural gas and natural gas liquids pipeline operators are expected to remain highly competitive. In addition to the existing pipeline companies, this midstream section has recently seen many energy companies form 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 time to time.
OKE’s Price Performance
In the past six months, shares of the company have risen 26.2% compared with the industry’s 14.8% growth.
Image Source: Zacks Investment Research
Other Stocks to Consider
Some other top-ranked stocks for investors interested in the same sector are Plains All American Pipeline PAA, sporting a Zacks Rank #1 (Strong Buy), and Constellation Energy Corporation CEG and NextDecade NEXT, both carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PAA’s 2025 earnings per unit indicates an increase of 18.6% year over year. The firm delivered an average earnings surprise of 7.2% in the trailing four quarters.
Constellation Energy has a long-term (three to five year) earnings growth rate of 17.47%. The Zacks Consensus Estimate for CEG’s 2025 earnings per share (EPS) indicates an increase of 9.9% year over year.
The Zacks Consensus Estimate for NEXT’s 2024 EPS indicates an increase of 54% year over year. The consensus mark for 2025 EPS indicates a decrease of 61.1% year over year.
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