Oil & Gas Stocks

ONEOK Inc Valuation – January 2019 $OKE

Company Profile (excerpt from Reuters): ONEOK, Inc., incorporated on May 16, 1997, is an energy midstream service provider in the United States. The Company owns and operates natural gas liquids (NGL) systems, and is engaged in the gathering, processing, storage and transportation of natural gas. The Company’s operations include a 38,000-mile integrated network of NGL and natural gas pipelines, processing plants, fractionators and storage facilities in the Mid-Continent, Williston, Permian and Rocky Mountain regions. The Company operates through three business segments. The Natural Gas Gathering and Processing segment provides midstream services to contracted producers in North Dakota, Montana, Wyoming, Kansas and Oklahoma. The Natural Gas Liquids segment owns and operates facilities that gather, fractionate, treat and distribute NGLs and store NGL products primarily in the Mid-Continental, Permian Basin and the Rocky Mountain regions. The Natural Gas Pipelines segment provides transportation and storage services to end users.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of OKE – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $25,627,821,136 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.74 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 22.19% Fail
6. Moderate PEmg Ratio PEmg < 20 33.75 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.89 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.74 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -12.96 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.85
MG Growth Estimate 3.41%
MG Value $28.29
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $26.78
MG Value based on 0% Growth $15.70
Market Implied Growth Rate 12.62%
Current Price $62.32
% of Intrinsic Value 220.30%

ONEOK, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.5 in 2014 to an estimated $1.85 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.62% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into ONEOK, Inc. revealed the company was trading above its Graham Number of $29.66. The company pays a dividend of $2.72 per share, for a yield of 4.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 33.75, which was below the industry average of 41.28, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-22.78.

ONEOK, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$22.78
Graham Number $29.66
PEmg 33.75
Current Ratio 0.74
PB Ratio 3.89
Current Dividend $2.72
Dividend Yield 4.36%
Number of Consecutive Years of Dividend Growth 15

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $1,807,908,000
Total Current Liabilities $2,450,206,000
Long-Term Debt $8,325,708,000
Total Assets $17,911,314,000
Intangible Assets $970,117,000
Total Liabilities $11,258,556,000
Shares Outstanding (Diluted Average) 414,847,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.75
Dec2017 $1.29
Dec2016 $1.66
Dec2015 $1.16
Dec2014 $1.49
Dec2013 $1.27
Dec2012 $1.71
Dec2011 $1.68
Dec2010 $1.55
Dec2009 $1.44
Dec2008 $1.48
Dec2007 $1.40
Dec2006 $1.34
Dec2005 $2.53
Dec2004 $1.15
Dec2003 $0.61
Dec2002 $0.70
Dec2001 $0.43
Dec2000 $0.62
Aug1999 $0.56
Aug1998 $0.56

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.85
Dec2017 $1.39
Dec2016 $1.44
Dec2015 $1.38
Dec2014 $1.50
Dec2013 $1.52
Dec2012 $1.62
Dec2011 $1.55
Dec2010 $1.47
Dec2009 $1.50
Dec2008 $1.55
Dec2007 $1.52
Dec2006 $1.48
Dec2005 $1.39
Dec2004 $0.78
Dec2003 $0.59
Dec2002 $0.58

Recommended Reading:

Other ModernGraham posts about the company

ONEOK Inc Valuation – March 2018 $OKE
5 Speculative and Overvalued Companies to Avoid – July 2016
ONEOK Inc Valuation – July 2016 $OKE
5 Speculative and Overvalued Companies to Avoid – March 2015
28 Companies in the Spotlight This Week – 2/28/15

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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