ONEOK Partners Limited

ONEOK Partners recently confirmed its higher 2008 earnings guidance despite Hurricane Ike impacting some facilities in the Gulf Coast region as commodity prices stay elevated. The partnership also increased its distribution for the 10th consecutive quarter.

ONEOK has surprised on earnings 4 consecutive quarters by an average of 24.16%. It has a forward P/E of 9.87.

Company Description

ONEOK Partners Limited (OKS - Snapshot Report) is one of the largest natural gas limited partnerships in the U.S. The partnerships owns the natural gas liquid (NGL) system that connects the natural gas and NGL supply in the Mid-Continent with key markets.

Net Income Jumped 63% in the Second Quarter

On Aug 5, ONEOK Partners reported second quarter earnings that surprised on Wall Street estimates by 39.05%, or 41 cents per share, as commodity prices remained high in the quarter. Net income surged 63% to $154.5 million, or $1.46 per share, from $94.6 million, or 97 cents, in the second quarter of 2007.

For the first two quarters, net income rose 57% to $299.5 million from $190.4 million from the first-half of 2007.

The partnership saw gains in all four of its business segments primarily due to higher commodity prices in the natural gas gathering and processing segment. ONEOK also continues to see benefits from the natural gas liquids and refined petroleum products pipeline system it acquired last year.

2008 Guidance Raised

ONEOK Partners is bullish about the rest of 2008. On Aug 5, it raised 2008 guidance to the range of $5.20 to $5.60 from $4.10 to $4.60. The partnership attributed the increased forecast to strong results in the first half of the year and current commodity prices and hedges that are in place.

In its updated guidance, the partnership used 2008 average unhedged prices of $120 per barrel for crude oil, $1.65 per gallon for composite natural gas liquids and $9.20 per MMBtu for natural gas.

On Sep 17, ONEOK announced that it had no exposure to the Lehman Brothers bankruptcy nor did it expect any impact on the earnings guidance range from Hurricane Ike. ONEOK was not a participant in the partnership's revolving credit facility.

Consensus Estimates Rise

In response to the partnership's guidance, covering analysts have been raising estimates for the third quarter and the full year in the last 60 days. Third quarter consensus estimates are up 21 cents to $1.25 per unit. Full year estimates jumped 15% to $5.33 from $4.64 in that same period, matching the partnership's forecast range.

Value Fundamentals

ONEOK Partners is a Zacks #1 Rank (Strong Buy) stock. It has a forward P/E of 9.87. OKS price-to-book is 1.76. The partnership has a stellar five year average return on equity (ROE) of 18.68%.

ONEOK raised its dividend in July to $1.06 per unit from $1.04, effective in the second quarter payout which was distributed on Aug 14. The increase will result in an annualized cash distribution of $4.24.

With the latest increase, the partnership has raised the distribution 10 consecutive quarters.

ONEOK reports third quarter earnings on Nov 5.