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Analyst Blog

Shares of Williams Companies Inc. (WMB - Analyst Report) hit a 52-week high of $38.61 on Dec 30. In fact, the Tulsa, Oklahoma-based energy firm has seen its stock price climb some 10% during the past month.

This price appreciation can be attributed to its ability to generate highly visible cash flow and dividend growth over the next several years. What’s more, Williams Companies’ exposure to a bullish natural gas liquids (NGL) processing market and a deep inventory of growth projects is set to unlock significant shareholder value.

Why the Bullishness?

Williams Companies is a premier energy infrastructure provider in North America. The company’s core operations include finding, producing, gathering, processing and transportation of natural gas.

Williams Companies’ midstream assets, which are less sensitive to commodity prices, help the company to maintain a steady stream of revenues and cash flow even if natural gas prices stay low. Furthermore, Williams Companies is poised to benefit from the rebound in industrial activity, which will include increased natural gas demand in the form of natural gas liquids.  

In Nov 2013, Williams Companies approved a raise in its quarterly cash dividend to 38 cents per share ($1.52 per share annualized), representing an increase of 4% over the previous payout. The dividend hike not only highlights the company’s commitment to create value for shareholders but also underlines Williams Companies’ new policy – a continued 20% annual dividend growth over the next few years.

Finally, Williams Companies, after the volatile and capital-intensive WPX Energy Inc. (WPX - Snapshot Report) spin-off in 2011, has transformed itself into a pure play midstream conglomerate with operations spanning from the Canadian oil sands to deepwater fields in the Gulf of Mexico.

Zacks Rank & Stock Picks

With Williams Companies shares trading at 52-week high, any upside from here may be limited, as suggested by the company's Zacks Rank #3 (Hold). We also remain concerned about volatile natural gas prices, which are likely to dampen its near-term growth prospects.

Some better-ranked stocks in the energy sector include Parker Drilling Co. (PKD - Snapshot Report) and Harvest Natural Resources Inc. (HNR - Snapshot Report). Both carry a Zacks Rank #1 (Strong Buy).

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