E&P'er Williams Remains a Buy

We are reiterating our Buy recommendation, earnings estimates and price objective for Williams Companies, Inc. (WMB - Analyst Report) shares following the company’s quarterly results. The company remains well-positioned to capitalize on attractive growth opportunities in its low-risk exploration and production (E&P) business, besides enjoying strong leverage to continued strength in natural gas liquids margins in its Midstream business.

We believe that Williams’ Rockies development drilling program focused on the Piceance Basin is the key to its upstream growth going forward. Production is expected to grow at double-digit rates this year. The recent 10% dividend increase, a $1 billion buyback program, and creation of a pipeline MLP are some the important catalysts for future growth. We believe that the company has moved beyond its restructuring phase and is now clearly ready to focus on growth opportunities.

For 2009, the company guided towards earnings in the $2.6 billion to $3.2 billion range and EPS in the range of $1.80 and $2.30. The previous ranges were $2.5 billion to $3.1 billion in consolidated segment profit and earnings per share of $1.70 to $2.20.

Using unchanged multiples of 8.0x, 10.0x, and 9.0x our projected 2008 EBITDA estimates for the E&P (raised), Pipelines (lowered), and Midstream (raised) segments, respectively, takes us to an enterprise value of approximately $33.8 billion. Netting out net debt of $6.2 billion and using a diluted share count of 608 million, we get a $45.20 per share value. The variability of profits in its E&P and midstream businesses due to commodity price changes could provide significant up or downside risk to our valuation.

Read the full analyst report on WMB