ONEOK's (OKE) Long-Term Fee-Based Commitments Bode Well

ONEOK, Inc. (NYSE:OKE) is poised to benefit from ONEOK Partners acquisition, higher fee-based earnings and midstream assets located in higher productive regions.

The Zacks Consensus Estimate for the company’s 2020 earnings is pegged at $3.63 per share on revenues of $10.64 billion. The bottom-line figure suggests 18.24% year-over-year improvement. The same for the top line indicates growth of 4.67% on a year-on-year basis.

What’s Driving the Stock?

ONEOK is placed well to gain from long-term fee-based commitments in its Natural Gas Gathering and Processing and Natural Gas Liquids segments. The company’s consolidated fee-based earnings of 2019 were approximately 90%. It anticipates majority of its earnings in 2020 to be fee-based.

The company continues to invest in organic growth projects to expand existing operating regions, and provide a broad range of services to crude oil and natural gas producers and end-use markets. In 2019, capital expenditures amounted to $3.84 billion. The company now anticipates spending in the range of $1.60-$2.40 billion, lower than its prior guidance. This can be attributed to the economic turmoil as a result of the coronavirus outbreak.

ONEOK’s strong cash flow generation capability is helping it in strengthening balance sheet and increasing shareholder value through the payment of dividend. During 2019, ONEOK’s board of directors paid $3.53 per share dividends in total, which is 9% higher than $3.245 per share paid in 2018. In February 2020, the company paid a quarterly dividend of 93.5 cents per share, up 9% from prior-year quarter.

However, stringent government regulations, sluggishness in demand due to the outbreak, and intensifying competition in the pipeline business are potential growth deterrents.

Zacks Rank & Price Performance

The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 12 months, shares of the company have lost 70.1% compared with the industry’s decline of 37.6%.

Stocks to Consider

Some better-ranked stocks from the same industry are Pacific Gas & Electric Co. (NYSE:PCG) , NorthWestern Corporation (NYSE:NWE) and Duke Energy Corporation (NYSE:DUK) . All the stocks carry a Zacks Rank #2 (Buy).

Long-term earnings growth of Pacific Gas & Electric, NorthWestern and Duke Energy is pegged at 2.50%, 3.10% and 4.70%, respectively.

Pacific Gas & Electric, NorthWestern and Duke Energy have trailing four-quarter positive earnings surprise of 7.35%, 7.62% and 6.53%, on average, respectively.

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