Williams Companies upped to 'outperform'
We believe this North American pure play energy infrastructure company will be able to generate highly visible cash flow and dividend growth.
By: Zacks Equity Research
Following the successful separation of its upstream operations via a tax-free spin-off, we have upgraded Williams Companies Inc. (WMB) to "outperform" from "neutral."
Tulsa, Oklahoma-based Williams is a premier energy infrastructure provider in North America. The company’s core operations include finding, producing, gathering, processing, and transporting natural gas. Boasting of a widespread pipeline system, Williams is one of the largest domestic transporters of natural gas by volume. Its facilities -- gas wells, pipelines, and midstream services -- are concentrated in the Northwest, Rocky Mountains, Gulf Coast, and Eastern Seaboard.
The company divides its business into three segments: Williams Partners, which includes the company’s 73%-owned master limited partnership Williams Partners L.P. (WPZ), Midstream Canada & Olefins, and Other.
In December 2011, Williams completed the spin-off of its exploration and production (E&P) business into a separate, independent and publicly traded company WPX Energy Inc. (WPX).
Williams, after the WPX Energy spin-off, has transformed itself into a pure-play midstream conglomerate with operations spanning from the Canadian oil sands to deepwater fields in the Gulf of Mexico.
We believe this North American pure-play energy infrastructure company will be able to generate highly visible cash flow and dividend growth over the next several years through strong operational performances by its business units.
In particular, the growth prospects for energy infrastructure all across North America remain exciting with the requirement to support producers in the growth of shale output, especially in regions where there is a severe lack of facilities. This creates exciting opportunities for a pipeline company such as Williams, as it looks to capture the economic benefit of this trend.
Additionally, with Williams now free from the capital constraints of a typical E&P firm, the company’s exposure to a bullish natural gas liquids (NGL) processing market and a deep inventory of growth projects is set to unlock significant shareholder value.
Late last year, the energy infrastructure entity raised its quarterly cash dividend to 25 cents per share ($1.00 per share annualized), representing an increase of 25.0% over the previous payout and double the dividend distributed in December 2010.
The dividend hike not only highlights Williams’ commitment to create value for shareholders but also underlines its new policy -- a continued 10%-15% annual dividend growth over the next few years -- that requires it to pay out substantially all of the distributions it gets from its partnership, Williams Partners L.P.
All in all, we believe Williams is favorably positioned to continue accelerating revenue and earnings growth over the next few quarters.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The stock rises 9% after the company reveals strong second-quarter results.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.