Upside for Williams Companies

Capitalizing on the Secular Trend

As U.S. abandons coal and becomes less reliant on oil, natural gas will emerge as the fuel of choice due to its environmental friendly nature, greater efficiency and cost effectiveness. Therefore, opportunities for natural gas producer and pipeline firm The Williams Companies Inc. (WMB">WMB) will also improve, as it captures the economic benefit of this trend.

Supported by strong consistency in its earnings/cash flows, attractive fundamentals and a positive outlook, we remain optimistic about the company’s near-term prospects. Williams, which possesses top infrastructure and proven expertise in monetizing assets, currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

About the Company

Tulsa, Oklahoma-based The Williams Companies is an integrated energy firm that primarily finds, produces, gathers, processes and transports natural gas primarily in the Rocky Mountains, Gulf Coast, Pacific Northwest, Eastern Seaboard and the Marcellus Shale in Pennsylvania.

The company divides its business into four segments: Exploration & Production (“E&P”), Williams Partners – that includes the company’s 84%-owned master limited partnership Williams Partners L.P. (WPZ">WPZ) – Midstream Canada & Olefins, and Other.

The Catalysts

We like Williams’ strong upstream asset base and attractive growth prospects. The company’s core Exploration and Production and midstream segments are expected to be the key growth drivers going forward. We also believe that the recent strategic restructuring should further enhance Williams’ value by improving the competitiveness of its midstream and gas pipeline assets.

We are particularly bullish on Williams’ midstream and pipeline sectors and expect growing cash flows from these assets. The company is poised to benefit from the rebound in industrial activity, which will include increased natural gas demand in the form of natural gas liquids.

Last month, the energy infrastructure entity raised its quarterly cash dividend to 25 cents per share ($1.00 per share annualized), representing an increase of 25.0% over the previous payout and double the dividend distributed in December 2010.

The dividend hike not only highlights Williams’ commitment to create value for shareholders but also underlines its new policy – a continued 10-15% annual dividend growth over the next few years – that requires it to pay out substantially all of the distributions it gets from its partnership, Williams Partners L.P.

All in all, we believe Williams is favorably positioned to continue accelerating revenue and earnings growth over the next few quarters.

Read the full analyst report on WMB

Read the full analyst report on WPZ