OneOK (OKE) is building a head of steam on the U.S. shale gas boom, growing its infrastructure to deliver gas in the Midwest while paying a healthy yield. Management says it will continue to spend to meet the need to move gas to its customers, although analysts warn that its current share price might be close to fair value for now.
OneOK is a diversified energy company that gathers, processes, stores and transports natural gas in the United States. In addition, OneOK Partners owns natural gas liquids (NGL) systems, connecting NGL supply in the Mid-Continent and Rocky Mountain regions with key market centers.
OneOk also is the largest natural gas distributor in Oklahoma and Kansas and the third-largest natural gas distributor in Texas, providing service as a regulated public utility to wholesale and retail customers.
“North American natural gas production continues to increase at a faster rate than demand, primarily as a result of increased production from unconventional resource areas, such as shale plays,” management noted in a recent filing.
“Because of the relatively higher market prices of crude oil and NGLs, drilling activity is especially robust in shale plays with crude oil and NGL-rich natural gas production.”
More supply means more demand for midstream, the company predicts.
“In response to this increased production and demand for NGL products, OneOK Partners is investing approximately $2.7 billion to $3.3 billion in new capital projects to meet the needs of oil and natural gas producers,” management said.
During 2011, OneOK paid cash dividends of $2.16 per share, an increase of approximately 18.7 percent from the $1.82 per share paid in 2010.
In January 2012, it declared a dividend of 61 cents per share ($2.44 per share on an annualized basis), an increase of approximately 17.3 percent from the 52 cents declared in January 2011, the company notes.
OneOK is a $8.59 billion market cap firm in a sector, gas utilities, where the company average is $672.65 million. Its trailing 12-month P/E ratio is 24.83 vs. 19.30 for the sector.
OneOK has a five-year projected price-to-earnings-growth (PEG) ratio of 2.32, far lower than the sector average of 11.16. Its projected earnings per share growth for the coming 12 months is 15.6 percent, compared to 12 percent for the sector.
Mixed calls
Analysts are mixed on OneOK, offering up a range of opinions. UBS, JP Morgan and Morgan Stanley are positive on the stock, while Columbine Capital Services and Thomas White International have issued sell calls.
“OKE has been on a neutral signal since Dec. 19, 2011. OKE’s neutral rating is due to its NDR Equity Focus Rank of 45.33, which falls between the required minimum buy rating rank of 90 and maximum sell rating rank of 10,” reported Ned Davis Research on April 22.
“The combination of OKE’s technicals and fundamentals warrant neither a buy nor sell rating.”
OneOK next reports on May 1.
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