ONEOK Inc’s OKE expansion efforts are expected to aid future earnings and strengthen its position in the high-production regions. It also gains from diverse customer base. The company is expected to benefit from increasing pipeline volumes and fee-based commitments as production volumes rise.
However, this Zacks Rank #3 (Hold) company has to face strong competition in the pipeline business that could be a strong growth deterrent.
ONEOK continues to invest in organic growth projects to expand in the existing operating regions. It also aims to provide a broad range of services to crude oil as well as natural gas producers and end-use markets. Capital expenditures (including maintenance) totaled $289 million in the first quarter compared with $257 million in the year-ago period. OKE expects total capital expenditures in the $1,270-$1,480 million range in 2023. This indicates that systematic investments are made to expand and strengthen infrastructure with the expected increase in producer activity.
With production volumes resuming normalcy, ONEOK is poised to benefit from long-term fee-based commitments in all three of its segments. Approximately 90% of its 2022 earnings were fee-based. A substantial portion of its 2023 earnings are expected to be fee-based too.
OKE is well poised to scale further as production volumes continue to improve. This can be attributed to the company’s completed projects, and its 40,000 miles of natural gas liquid and natural gas pipelines in the most prolific U.S. shale basins. ONEOK’s Natural Gas Pipeline segment is expected to benefit from its transportation capacity of 5.5 Bcf/d and connectivity between key markets.
The natural gas and natural gas liquids pipeline industries are highly competitive. Apart from the existing pipeline companies, the midstream section has recently seen many energy companies forming master limited partnerships to begin pipeline services. Although the partnerships’ assets are well spread out, ONEOK’s ability to withstand competitive challenges will depend on the efficiency, quality and reliability of its services.
Stocks to Consider
Some better-ranked stocks for investors interested in the same sector are Cactus, Inc. WHD and Smart Sand SND, both sporting a Zacks Rank #1 (Strong Buy), and Battalion Oil BATL, holding a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Cactus, Smart Sand and Battalion Oil’s 2023 earnings per share indicates an increase of 45.11%, 1,450% and 3,278.6%, respectively, from the previous year’s level.
Cactus, Smart Sand and Battalion Oil delivered an average earnings surprise of 10.9%, 147.3% and 30.9%, respectively, in the last four quarters.
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