Shares of North American energy firm, Williams Companies Inc. (WMB - Analyst Report), soared to a 52-week high of $38.24 on Monday, Apr 1, 2013, buoyed by a slew of positive developments. The closing price of the energy infrastructure provider on that day was $37.94, representing a solid 1-year return of 22.2% and an impressive year-to-date return of about 11.5%. The average volume of shares traded over the last 30 days stands at approximately 6.9 million.
On Jan 2013, Williams increased its quarterly cash dividend payment by 4.2% to 33.875 cents per share, up from 32.5 cents per share paid in the fourth quarter of 2012 and 25.875 cents per share in the year-ago period.
In the first half of Mar 2013, Williams inked a deal with a master limited partnership – Boardwalk Pipeline Partners LP (BWP - Snapshot Report) – to form a joint venture for developing a pipeline project. The pipeline will carry natural gas liquids (NGL) to the growing petrochemical complex on the Gulf Coast from Utica and Marcellus shale plays situated in Ohio, West Virginia and Pennsylvania.
Later, on Mar 18, 2013, Williams announced that it is planning to spend up to C$900 million to construct a propane dehydrogenation (PDH) plant in Alberta, Canada. The new facility is expected to boost Williams’ Canadian production of polymer-grade propylene. Williams expects the new PDH plant to manufacture one of the cheapest propylene feedstocks in the entire North America.
In addition, Williams sports an impressive long-term expected earnings growth rate of 12%.
Tulsa, Oklahoma-based Williams’ core operations include finding, producing, gathering, processing and transportation of natural gas. Williams divides its business into four segments: Williams Partners, Williams NGL & Petchem Services, Access Midstream Partners and Other.
Although the share price of Williams rose to a 52-week high, we remain concerned about Williams’ high-debt level, which leaves it vulnerable to an extended drop in commodity prices. As of Dec 31, 2012, Williams had a long-term debt of more than $10.7 billion, representing a debt-to-capitalization ratio of 69.3%.
Moreover, we do not expect any further upward movement in the share price over the near term, as we believe the stock has already reached its peak.
As a result, Williams carries a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.
Stocks to Consider
Two firms in the energy sector that are expected to significantly outperform the equity markets in the next one to three months are Helmerich & Payne Inc (HP - Analyst Report) and Range Resources Corporation (RRC - Analyst Report). Both of these stocks carry a Zacks Rank #1 (Strong Buy).