Williams Partners' Pipeline Demand To Grow, Debt Level High

On Jun 6, we initiated coverage on energy infrastructure provider, Williams Partners LP (NYSE:WPZ) . We expect demand for the partnership’s natural gas pipeline to grow buoyed by higher demand for clean power generation. However, rising debt load is a concern.

Presently, Williams Partners carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.

The rapidly-expanding pipeline networks carry the highest volumes of natural gas in the U.S. Given the increasing requirement for natural gas as a clean power source, the demand for the partnership’s pipeline networks is set to scale higher.

The partnership’s capital budget is primarily focused on the expansion of Transco pipeline system – the largest interstate natural gas pipeline network in the nation – and other projects that will likely provide sustainable and steady fee-based revenues over a length of time.

It is to be noted that Gulf Trace project − among the five Transco expansion developments that will likely be online by this year − has started service ahead of scheduled time and will serve Cheniere Energy Partners LP (NYSE:CQP) . Gulf Trace development has the capacity to deliver natural gas at a rate of 1.2 billion cubic feet per day to the Louisiana-based Sabine Pass Liquefaction export terminal.

The prospective and large scale natural gas infrastructure assets led Williams Partners to provide unitholders with an impressive cash distribution yield of 6.1%, higher than the yield of the Zacks categorized Energy & Pipeline MLP industry.

However, increasing debt load, which is weighing on the partnership’s balance sheet, could delay pipeline expansion. Over the last six years, we have taken note of the substantial rise in the partnership’s debt load.

Moreover, the earnings surprise history of the partnership has a mixed record, with two misses in the last four quarters, resulting in an average negative surprise of 2.61%. On top of that, the one-year pricing chart shows that the 13.9% rally of Williams Partners stock lags the 16.1% rise of the broader industry.

Stocks to Consider

Better-ranked players in the energy sector include Canadian Natural Resources Limited (TO:CNQ) and McDermott International Inc. (NYSE:MDR) . Both Canadian Natural and McDermott sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

We expect year-over-year earnings growth for Canadian Natural of 702.4% for 2017.

McDermott beat the Zacks Consensus Estimate in each of the trailing four quarters, the average positive surprise being 387.50%.

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