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On Jun 11, Zacks Investment Research downgraded Tulsa, Okla.-based, Williams Companies Inc. (WMB - Analyst Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Williams witnessed sharp downward estimate revisions after reporting disappointing first-quarter 2013 results. In fact, this leading North American energy firm delivered negative earnings surprises in 3 of the last 4 quarters with an average miss of 6.53%.

On May 7, 2013, Williams reported weak first-quarter 2013 results, hamstrung by a significant fall in natural gas liquid (NGL) margins. Earnings per share – excluding special items – came in at 22 cents, below the Zacks Consensus Estimate of 24 cents and also down from the year-ago adjusted profit of 39 cents.

Notably, Williams’ high debt level is a cause of concern. It leaves the company vulnerable to an extended drop in commodity prices. As of Mar 31, 2013, Williams had long-term debt of more than $10.6 billion, representing a debt-to-capitalization ratio of 68.9%.

Moreover, we believe that the transfer of the upstream assets (post-split) has left Williams with a less diversified business. As a result, the business risk profile of the reorganized Williams is weaker than it was prior to the spin-off.

A combination of all these factors has weighed on the earnings estimates for Williams in the last 60 days. The Zacks Consensus Estimate for the second quarter of 2013 has gone down by 19.0% to 17 cents per share while it dropped 19.4% to 79 cents per share for 2013.

Other Stocks to Consider

Not all energy production/pipeline entities are performing as poorly as Williams. The stocks of EQT Midstream Partners LP (EQM - Snapshot Report), Oiltanking Partners LP (OILT - Snapshot Report) and Atlas Energy LP (ATLS - Snapshot Report) are worth considering. All these stocks carry a Zacks Rank #1 (Strong Buy).

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