Is Oneok the One for Investor’s Portfolios?

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to focus on a prominent United States natural gas pipeline partnership: Oneok Partners LP (NYSE: OKS).

Strengths:

  • Steady Revenue Growth: In 2006, Oneok reported revenue of $4.71 billion; in 2011, the company announced revenue of $11.32 billion, representing year over year annual growth of 19.17%, a distinctive trend which is highly anticipated to sustain into the future with projections placing 2014 revenue around $14 billion.  This growth has been due to strong demand for natural gas transportation
  • Massive Dividend: Oneok currently pays out quarterly dividends of $0.71, which when annualized puts the dividend as yielding 4.86%
  • Relatively Low Valuation: At the moment, the company carries a price to earnings ratio of 16.05, a price to book ratio of 3.57, and a price to sales ratio of 1.13; all of which indicate a company trading with a relatively low valuation
  • Predictable and Stable Business Model: Oneok’s business model is extremely predictable and stable as there is a persistent demand for the transportation of natural gas, and with this predictable and stable business model comes a certain level of certainty for investors
  • Low Volatilely: The company currently trades with a beta ratio of 0.44, representing a company trading with considerably less volatility than the overall market, a major upside for long-term investors
  • Net Profit Margin Expansion: In 2009, Oneok withheld a net profit margin of 5.20%; in 2011, the company possessed a net profit margin of 6.00%, and this trend of net profit margin expansion is extremely advantageous for the company as more revenue is translated into profit
  • Strong Profit Growth: Profit, like revenue, has experienced significant growth over the past years, growing 235.5% over the past 10 years.  This trend is widely anticipated to continue well into the future, and is a major strength of the company

Weaknesses:

  • Single Digit Net Profit Margin: Currently, Oneok possesses a net profit margin of 6.03%, representing a company leaving little room for unexpected expenditures
  • Lack of Institutional Confidence: Only 23.43% of shares outstanding are held by institutional investors, displaying a lack in confidence some of the largest investors in the world have in the company and its future
  • Net Debt: Despite possessing $963.65 million of cash and cash equivalents on their balance sheets, Oneok’s debt load of $4.81 billion results in the company possessing a rather significant net debt, a weakness of the company

Opportunities:

  • Geographical Expansion: Oneok owns natural gas facilities all across the United States, but over the past few years the company has significantly expanded geographically into some of the booming natural gas positions in the United States, and further geographical expansion could provide extensive opportunities for the company
  • Dividend Growth: Since implementing their dividend program in 1994, Oneok has consistently raised their dividend payouts, and further dividend growth could provide investors with significant opportunities for profit
  • Growth in Consumption of Natural Gas: The global consumption of natural gas is expected to grow from 111 billion ft.³ in 2008 to 169 billion ft.³ in 2035, and any growth in the consumption of natural gas could boost the demand to transport it, and in turn benefit Oneok
  • Acquisitions: One method that the company has utilized in the past to grow its geographical reach has been to acquire assets from other companies, with the most recent coming in June 2011, and further acquisitions could provide opportunities for the company

Threats:

  • Government Regulation: Any government regulation that rejects pipeline expansion proposals could cripple Oneok’s ability to expand rapidly, and prove to be a major threat to the business
  • Competition: The competition to transport natural gas is extremely fierce, with several major corporations competing in this industry, and the competition can lead to margin contraction

Competition:

Major publicly traded competitors of Oneok include Kinder Morgan Energy Partners LP (NYSE: KMP), Enterprise Products Partners LP (NYSE: EPD), Energy Transfer Partners LP (NYSE: ETP), and Williams Partners LP (NYSE: WPZ). All of these companies operate in the natural gas transportation industry and compete directly with Oneok. Kinder Morgan is valued at $32.26 billion, pays out a dividend yielding 5.84%, and carries a price to earnings ratio of 83.10. Enterprise is valued at $15.18 billion, pays out a dividend yielding 4.76%, and carries a price to earnings ratio of 20.48. Energy Transfer is valued at $13.87 billion, pays out a dividend yielding 7.75%, and carries a price to earnings ratio of 8.99. Williams is valued at $18.56 billion, pays out a dividend yielding 6.33%, and carries a price earnings ratio of 20.30.

The Foolish Bottom Line:

Financially, Oneok is an exceptional company. The company possesses solid revenue growth, a relatively low valuation, and a net profit margin that is expanding. Despite the company’s single digit net profit margin and minor debt load, the company is facing a future filled with opportunities that are likely to result in growth. Additionally, the company’s dividend is extremely substantial and will reward investors for many years to come. All in all, Oneok is a tremendous investment in fueling the United States of tomorrow and should provide incredible returns for long-term investors.


makinmoney2424 has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners L.P. and ONEOK Partners, L.P.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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