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Zacks Industry Outlook Highlights: Enbridge, Kinder Morgan, Williams Companies and DCP Midstream
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For Immediate Release
Chicago, IL – December 15, 2020 – Today, Zacks Equity Research discusses Oil & Gas - Pipeline, including Enbridge Inc. (ENB - Free Report) , Kinder Morgan, Inc. (KMI - Free Report) , The Williams Companies, Inc. (WMB - Free Report) and DCP Midstream, LP .
Midstream energy players have significantly lower exposure to oil and gas price volatility, thereby brightening the Zacks Oil and Gas - Production & Pipelines industry outlook amid the coronavirus pandemic. Importantly, with stable fee-based revenues and secured dividend payments, backed by long-term pipeline contracts, the companies are safe bets for investors.
The stocks that are well placed to deliver solid cashflow are Enbridge, Kinder Morgan, The Williams Companies and DCP Midstream.
About the Industry
The Zacks Oil and Gas - Production & Pipelines industry comprises companies that own and operate midstream energy infrastructure assets. The properties consist of extensive pipeline networks that transport crude oil, liquids and natural gas. The midstream energy players are also involved in processing and storing natural gas. Moreover, the companies have interests in natural gas distribution utilities and thereby serve millions of retail customers across North America.
What’s Shaping the Future of Oil & Gas - Production and Pipelines Industry?
Stable Fee-Based Revenues: With most pipeline and storage assets being contracted by the shippers for long term, midstream energy players’ business model has lower exposure to coronavirus-induced commodity price volatility. With long-term contracts in place, the pipeline players are also exposed to low volume risks.
Huge Project Backlog: Midstream energy companies have billions of dollar worth project backlogs that promise additional fee-based revenues once the projects become operational in the coming two to three years.
Dividend Growth: The companies are well placed to increase cashflow and dividend payments in the coming years, backed by huge networks of pipeline and storage assets, and strong project backlogs. The resilience of the companies’ operations to the coronavirus pandemic recently led some midstream energy players’ board of directors to approve dividend hikes.
Enbridge Inc. recently announced that its board of directors has approved an increase in quarterly dividend payment. Moreover, Kinder Morgan has revealed the board of directors’ intention to increase annual dividend for 2021 to $1.08 per share. This will mark a hike of 3% from 2020 dividend.
Improving Pipeline Demand: The price of crude oil is improving steadily. This is because the coronavirus vaccine will soon be rolled out in the United States in a massive scale, which can drastically boost fuel demand. Higher oil price will provide incentives to explorers and producers to gradually ramp up upstream activities. This in turn will boost demand for pipeline assets for transporting additional produced volumes of the commodity.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Oil and Gas - Production & Pipelines is a 13-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #66, which places it in the top 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector But Lags S&P 500
The Zacks Oil and Gas - Production & Pipelines has outpaced the broader Zacks Oil - Energy Sector but lagged the Zacks S&P 500 composite over the past year.
The industry has lost 16.3% over this period as compared with the 26.1% decline of the broader sector. Notably, the S&P 500 has gained 15% over the same time frame.
Industry’s Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing oil and gas production & pipeline stocks, the industry is currently trading at 10.33X, lower than the S&P 500’s 16.33X. It is, however, above the sector’s trailing-12-month EV/EBITDA of 4.99X.
Over the past five years, the industry has traded as high as 18.71X, as low as 8.49X, with a median of 13.46X.
4 Oil & Gas Pipeline Stocks Moving Ahead of the Pack
DCP Midstream, LP: The partnership is a leading natural gas processor in the domestic market. With a year-to-date excess free cash flow of $152 million and $1.3 billion in available liquidity, the stock is well suited for any energy investor’s portfolio. The stock, likely to see an earnings growth of 202% in 2021, sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Enbridge Inc: The company is a leading North American midstream energy player, having the longest crude oil pipeline network. Enbridge has C$10 billion worth of project backlogs that secure additional fee-based revenues.
In its recent financial guidance update, the midstream energy player mentioned its 2021 distributable cash flow (DCF) projection in the band of C$4.70-C$5.00 per share, reflecting an increase from the company’s 2020 DCF per share expectation at the midpoint of the C$4.50-C$4.80 range. The stock, carrying a Zacks Rank #3 (Hold), is likely to see earnings growth of 8.3% in 2021.
Kinder Morgan, Inc: With operating interests in oil and gas pipeline networks, spreading across 83,000 miles, Kinder Morgan is a leading energy infrastructure company in North America.
The #3 Ranked midstream energy giant announced that its projection for distributable cash flow (DCF) in excess of discretionary capital expenditures and dividend payments for 2021 stands at $1.2 billion, reflecting an uptick of more than $700 million from its 2020 guidance. Notably, the company, likely to see earnings growth of 3.9% in 2021, plans to allocate part of this excess coverage for reducing debt burden and repurchasing some shares, as a means of rewarding investors.
The Williams Companies, Inc: In North America, Williams is a leading energy infrastructure company. Being involved in gathering, processing and transporting natural gas, the company is well positioned to capitalize on the mounting demand for the commodity in the United States. The Zacks #3 Ranked stock is likely to see earnings growth of 8.1% and 8.5% in 2020 and 2021, respectively.
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Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Enbridge, Kinder Morgan, Williams Companies and DCP Midstream
For Immediate Release
Chicago, IL – December 15, 2020 – Today, Zacks Equity Research discusses Oil & Gas - Pipeline, including Enbridge Inc. (ENB - Free Report) , Kinder Morgan, Inc. (KMI - Free Report) , The Williams Companies, Inc. (WMB - Free Report) and DCP Midstream, LP .
Link:https://www.zacks.com/commentary/1164326/4-promising-stocks-from-the-prospering-oil-pipeline-industry
Midstream energy players have significantly lower exposure to oil and gas price volatility, thereby brightening the Zacks Oil and Gas - Production & Pipelines industry outlook amid the coronavirus pandemic. Importantly, with stable fee-based revenues and secured dividend payments, backed by long-term pipeline contracts, the companies are safe bets for investors.
The stocks that are well placed to deliver solid cashflow are Enbridge, Kinder Morgan, The Williams Companies and DCP Midstream.
About the Industry
The Zacks Oil and Gas - Production & Pipelines industry comprises companies that own and operate midstream energy infrastructure assets. The properties consist of extensive pipeline networks that transport crude oil, liquids and natural gas. The midstream energy players are also involved in processing and storing natural gas. Moreover, the companies have interests in natural gas distribution utilities and thereby serve millions of retail customers across North America.
What’s Shaping the Future of Oil & Gas - Production and Pipelines Industry?
Stable Fee-Based Revenues: With most pipeline and storage assets being contracted by the shippers for long term, midstream energy players’ business model has lower exposure to coronavirus-induced commodity price volatility. With long-term contracts in place, the pipeline players are also exposed to low volume risks.
Huge Project Backlog: Midstream energy companies have billions of dollar worth project backlogs that promise additional fee-based revenues once the projects become operational in the coming two to three years.
Dividend Growth: The companies are well placed to increase cashflow and dividend payments in the coming years, backed by huge networks of pipeline and storage assets, and strong project backlogs. The resilience of the companies’ operations to the coronavirus pandemic recently led some midstream energy players’ board of directors to approve dividend hikes.
Enbridge Inc. recently announced that its board of directors has approved an increase in quarterly dividend payment. Moreover, Kinder Morgan has revealed the board of directors’ intention to increase annual dividend for 2021 to $1.08 per share. This will mark a hike of 3% from 2020 dividend.
Improving Pipeline Demand: The price of crude oil is improving steadily. This is because the coronavirus vaccine will soon be rolled out in the United States in a massive scale, which can drastically boost fuel demand. Higher oil price will provide incentives to explorers and producers to gradually ramp up upstream activities. This in turn will boost demand for pipeline assets for transporting additional produced volumes of the commodity.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Oil and Gas - Production & Pipelines is a 13-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #66, which places it in the top 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector But Lags S&P 500
The Zacks Oil and Gas - Production & Pipelines has outpaced the broader Zacks Oil - Energy Sector but lagged the Zacks S&P 500 composite over the past year.
The industry has lost 16.3% over this period as compared with the 26.1% decline of the broader sector. Notably, the S&P 500 has gained 15% over the same time frame.
Industry’s Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing oil and gas production & pipeline stocks, the industry is currently trading at 10.33X, lower than the S&P 500’s 16.33X. It is, however, above the sector’s trailing-12-month EV/EBITDA of 4.99X.
Over the past five years, the industry has traded as high as 18.71X, as low as 8.49X, with a median of 13.46X.
4 Oil & Gas Pipeline Stocks Moving Ahead of the Pack
DCP Midstream, LP: The partnership is a leading natural gas processor in the domestic market. With a year-to-date excess free cash flow of $152 million and $1.3 billion in available liquidity, the stock is well suited for any energy investor’s portfolio. The stock, likely to see an earnings growth of 202% in 2021, sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Enbridge Inc: The company is a leading North American midstream energy player, having the longest crude oil pipeline network. Enbridge has C$10 billion worth of project backlogs that secure additional fee-based revenues.
In its recent financial guidance update, the midstream energy player mentioned its 2021 distributable cash flow (DCF) projection in the band of C$4.70-C$5.00 per share, reflecting an increase from the company’s 2020 DCF per share expectation at the midpoint of the C$4.50-C$4.80 range. The stock, carrying a Zacks Rank #3 (Hold), is likely to see earnings growth of 8.3% in 2021.
Kinder Morgan, Inc: With operating interests in oil and gas pipeline networks, spreading across 83,000 miles, Kinder Morgan is a leading energy infrastructure company in North America.
The #3 Ranked midstream energy giant announced that its projection for distributable cash flow (DCF) in excess of discretionary capital expenditures and dividend payments for 2021 stands at $1.2 billion, reflecting an uptick of more than $700 million from its 2020 guidance. Notably, the company, likely to see earnings growth of 3.9% in 2021, plans to allocate part of this excess coverage for reducing debt burden and repurchasing some shares, as a means of rewarding investors.
The Williams Companies, Inc: In North America, Williams is a leading energy infrastructure company. Being involved in gathering, processing and transporting natural gas, the company is well positioned to capitalize on the mounting demand for the commodity in the United States. The Zacks #3 Ranked stock is likely to see earnings growth of 8.1% and 8.5% in 2020 and 2021, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.