Back to top

Analyst Blog

On Apr 3, Zacks Investment Research downgraded North American energy firm Williams Companies Inc. (WMB - Analyst Report) to a Zacks Rank #5 (Strong Sell) following the stock’s recent gains, which have brought valuation inline with our earlier expectations.

With natural gas prices likely to remain soft in the near- to medium-term, Williams’ margins are expected to suffer in the next few quarters. The company’s fairly debt-heavy balance sheet also remains an issue. Additionally, the transfer of the exploration and production operations has heightened Williams’ risk profile.

Why the Downgrade?

The glut in domestic gas supplies continues with storage levels remaining above their five-year average. This translates into a bearish near- to medium-term outlook for natural gas-weighted firms like Williams Companies, more so after considering the fact that shares have already risen by approximately 10% during the last month.

We believe that transfer of the upstream assets – into a separate, independent and publicly traded company WPX Energy Inc. (WPX - Snapshot Report) – has left Williams with a less diversified business. As a result, the business risk profile of the reorganized Williams is weaker than that of the pre-spin-off company.

Finally, we remain concerned about Williams Companies’ high debt levels, which leave it vulnerable to an extended drop in commodity prices. As of Dec 31, 2012, Williams had long-term debt of more than $10.7 billion, representing a debt-to-capitalization ratio of 69.3%.

As a result of these bearish factors, the tendency for a downward estimate revision has been more obvious in recent times. In fact, the Zacks Consensus Estimate for the first quarter has moved down by 4 cents (or 14%) to 24 cents per share over the last 60 days. The Zacks Consensus Estimate for the full year is 98 cents, down 19 cents (or 16%) in the same timeframe

Stocks that Warrant a Look

While we expect Williams to perform below its peers and industry levels in the coming months and see little reason for investors to own the stock, one can look at NGL Energy Partners L.P. (NGL - Snapshot Report) and Calumet Specialty Products Partners L.P. (CLMT - Snapshot Report) as good buying opportunities. These oil refining and marketing partnerships – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
STRATTEC SE… STRT 80.24 +3.00%
PATTERSON-U… PTEN 34.54 +2.98%