In addition, the company has announced several organic growth projects which imply the investment of over $15 billion, which will be executed by a highly experienced and reliable management team, top in their sector. Credit Suisse calculations indicate that their diversified investment portfolio should generate a 17.4% CAGR in Dividends per share by the end of 2017.
–Operating margin of 21.5% is close to the firm’s historic maximum of 23.5% and ranks higher than 81% of the 43 companies in the Global Oil & Gas Integrated Industry.
– Net margin of 11.5% is at the highest point in the firm´s history.
– Return on Equity of 18.1% is close to its historic high and beats the 14.8% industry median.
In spite of these encouraging signs, some analyst prefer to hold on this stock, and several reasons back this decision as well.
– Revenue per share has been constantly declining for over two years now.
– Long-term debt has been issued over the past 3 years for a value of $3.1 billion. The cash to debt ratio of 0.078 is the worst in Williams Partners L.P. (NYSE:WPZ)´ history and interest coverage of 3.2 is quite low, overexposing the company to a drop in commodity prices.
– The domestic gas oversupply in the U.S., with enlarged reserves. This means that this gas-weighted should face a complicate situation in the short and medium term.
– Equity to asset ratio of 0.099 is the worst in the industry.
– Stock price at $38.38 is at its highest point in history. Trading at 27.4x P/E, several companies closer to the 11.3x P/E industry median, look more interesting.
A Good Target in Energy Transportation
Just like Williams Partners L.P. (NYSE:WPZ), Kinder Morgan Inc (NYSE:KMI) is engaged in the energy transportation business. Although Zacks recommends holding on the stock, they expect it to outperform within the next 6 months, reaching a target price of $47, up about 20% from the current cost.
During 2012´s fourth quarter, the company reported:
– Increased revenues of $3.079 billion, up 52% year over year.
– Informed net income of $220 million reported a 41% upsurge (YoY).
– Operating margin of 26% was up almost 40% (YoY), reaching the highest value in the firm´s history and outperforming 74% of the 43 Oil & Gas Midstream Companies in the U.S.
– The acquisition of El Paso Corporation provided an important boost to the firm´s financials and is expected to continue to drive profit growth, while making of Kinder Morgan Energy Partners LP (NYSE:KMP) the largest company in the midstream energy sector.
– Dividend Yield of 3.54% is close to its historic high of 3.99%.
Given these advantages, some analysts recommend buying (Morningstar), while others advocate holding (Zacks). This last position is encouraged by several negative issues in Kinder Morgan.
The main problem is financial as, in order to finance the recent El Paso acquisition, Kinder Morgan Energy Partners LP (NYSE:KMP) incurred in additional debt, maintaining leverage levels considerably high. Long-term debt reached $32 billion by the end of fiscal 2012, leaving behind a poor 1.9 interest coverage, quite below the 2.8 industry median. Also affected by the substantial liability, the Equity to Asset ratio of -0.16 is at its historical low and cash to debt relation of 0.021 is also below the segment´s median of 0.04.
Maybe responding to these bad signs, Chuck Royce recently decided to sell 20% of his Kinder Morgan Energy Partners LP (NYSE:KMP) shares at an average of $37.24. However, this seems to not have benefited him completely since the price is up by approximately 6% since he sold. Maybe holding on to this stock is a good idea; maybe even buying some could prove to outperform expectations.
Bottom line
With an impressive infrastructure and asset base and promising growth prospects at only 27.4x P/E, one of the lowest ratios in the firm´s history, Williams seems to be the wisest choice at the time. Although none of these companies provide an impeccable outlook, they are all worth looking from time to time.
The article 3 Big Players in the Oil & Gas Sector originally appeared on Fool.com and is written by Victor Selva.
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