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We retain our Neutral recommendation on ONEOK Inc. (OKE - Analyst Report) due to the company’s recent quarter miss. The company’s second quarter results of 51 cents per share lagged the Zacks Consensus Estimate of 55 cents. Though the company’s second quarter miss was slightly disappointing, we believe the company has the potential to match up to its revised guidance.

ONEOK raised the mid-point of its operating income guidance for 2011 to $1,012 million, while it has tweaked the net income expectation to a range of $325 million to $345 million.

Tulsa, Oklahoma-based ONEOK Inc. is strongly positioned in the mid-continent natural gas market. The primary growth vehicle for the company has been its master limited partnership (MLP) ONEOK Partners L.P. (OKS - Analyst Report), which contributes substantially to the company’s results.

Going forward, the company continues to target growing earnings through asset optimization and expansion. We expect ONEOK to grow earnings above its industry peers through internal development coupled with acquisitions.

Apart from strong operational virtues, the company’s practice of rewarding shareholders by constantly raising dividends continues to impress us. ONEOK’s above-industry-average dividend yield offers a solid opportunity for income-oriented investors, in our view.

On the negative side, the company remains prone to the volatile credit markets, utility regulations, weather impacts and unpredictable commodity prices, which blunt our optimism about the stock.

ONEOK’s operations are subject to various federal, state, and local regulations, as well as extensive environmental regulations. The company’s profitability largely depends on its ability to pass costs related to providing energy and other commodities to customers by obtaining the required regulatory approvals.

The company’s business is also sensitive to fluctuations in weather. The demand for natural gas and some of ONEOK Partners’ products, namely propane, is weather sensitive and seasonal. This seasonality and deviations in weather conditions may cause variations in the company’s earnings and short-term cash requirements.

ONEOK Inc. is a diversified energy company, operating as a natural gas distributor primarily in the United States. The company presently has a Zacks #3 Rank, which translates into a short-term Hold rating.

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