On Thursday, BofA Securities began coverage of ONEOK Inc (NYSE: NYSE:OKE), a midstream service provider in the natural gas industry, with a Buy rating and a price target of $105.00. The company, which is leveraged to natural gas liquids (NGL) growth in the Bakken region, is anticipated to see faster growth in NGL volumes compared to overall volumes.
The analyst from BofA Securities noted that even with a base case of no growth in Bakken oil in 2025, an estimated 3% NGL growth could lead to an approximate $90 million per year increase in EBITDA. This increase is expected to be supported by synergies from previous mergers.
However, the firm also pointed out potential challenges in the first half of 2025, where lower ethane volume could act as a headwind due to softening demand and reduced recovery from the Bakken.
The positive outlook on ONEOK is partly based on the company's successful integration and realization of synergies from the merger with Magellan Midstream Partners (NYSE:MMP). The analyst's commentary suggests that if ONEOK can replicate this success with the recent Enlink and Medallion acquisitions, there could be further upside to the company's performance.
ONEOK's stock rating and price target reflect BofA Securities' expectations of the company's financial growth and operational execution. The company's actions in the coming months, particularly regarding the integration of its latest mergers, will be crucial to meeting the expectations set by the new coverage.
In other recent news, ONEOK Inc. has seen a significant 28% year-over-year increase in net income, reaching $780 million, surpassing analyst expectations.
The company has also successfully issued a series of notes totaling $6.9 billion to finance the acquisition of interests in EnLink Midstream (NYSE:ENLC), LLC and Medallion Midstream, LLC.
Analysts from various firms have adjusted their ratings on ONEOK following these developments. Morgan Stanley upgraded ONEOK from an Equal-weight to an Overweight rating, recognizing the potential growth from the company's acquisition of a controlling interest in Enable Midstream (NYSE:ENBL) Partners.
However, CFRA downgraded ONEOK shares from a Buy to a Hold rating due to valuation concerns but raised its price target. Stifel and Citi maintained a Buy rating on ONEOK, acknowledging the company's strategic acquisitions. These acquisitions are projected to contribute over $2 billion to ONEOK's long-term EBITDA and increase its free cash flow by approximately 20% by 2028.
These are some of the recent developments in ONEOK's business operations.
InvestingPro Insights
ONEOK's financial metrics and market performance align with BofA Securities' optimistic outlook. The company's market capitalization stands at $55.97 billion, reflecting its significant presence in the midstream natural gas sector. ONEOK's P/E ratio of 20.68 suggests investors are willing to pay a premium for its earnings, possibly due to the growth potential highlighted in the analyst's report.
The company's revenue for the last twelve months as of Q2 2024 was $19.1 billion, with a notable quarterly revenue growth of 31.14% in Q2 2024. This robust growth supports the analyst's expectations of increased NGL volumes and potential EBITDA growth. ONEOK's EBITDA growth of 47.37% over the same period further underscores its strong operational performance.
InvestingPro Tips point out that ONEOK has raised its dividend for 21 consecutive years, with a current dividend yield of 4.14%. This consistent dividend growth aligns with the company's stable cash flows and could be attractive to income-focused investors. Additionally, ONEOK's stock has outperformed the S&P 500 in total returns over the past year, with a one-year price total return of 45.1%, reflecting investor confidence in the company's growth strategy and market position.
For readers interested in a deeper analysis, InvestingPro offers 12 additional tips for ONEOK, providing a comprehensive view of the company's financial health and market prospects.
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