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3 Oil Pipeline Stocks Capitalizing on Solid Industry Fundamentals
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The oil and gas pipeline players have billions of dollars in key capital projects that could generate incremental cash flows. Also, rising clean energy demand from the data centers is brightening the prospects for natural gas transportation companies, enhancing the Zacks Oil and Gas - Production and Pipelines industry’s outlook.
The companies belonging to the industry are also benefiting from stable fee-based revenues, since most of the contracts are for the long term. Key players in this industry include Enbridge Inc. (ENB - Free Report) ,Kinder Morgan, Inc. (KMI - Free Report) and The Williams Companies Inc. (WMB - Free Report) .
About the Industry
The Zacks Oil and Gas - Production and Pipelines industry comprises companies that own and operate midstream energy infrastructure assets. The properties consist of extensive pipeline networks that transport crude oil, liquids and natural gas. The midstream energy players are also involved in the processing and storing of natural gas. The companies have interests in natural gas distribution utilities, serving millions of retail customers across North America. Some companies are ramping up investments in renewable energy and power transmission businesses. The firms invested in wind farms, solar energy operations, geothermal projects and hydroelectric facilities. Thus, with a diversified portfolio of renewable energy projects, the firms have room to generate extra cash flows in addition to stable fee-based revenues from transportation assets.
What's Shaping the Future of Oil & Gas - Production & Pipelines Industry?
Stable Cash Flow Generations: The midstream assets are usually booked by shippers for the long term, thereby generating stable cash flows. The long-term contracts are mostly take-or-pay contracts, meaning shippers have to pay a minimum amount even if they don’t utilize the midstream assets. Thus, cash flow generations are highly predictable, suggesting that the business model is not very vulnerable to volatility in oil and natural gas prices.
Rising Demand From Data Centers: The natural gas transportation companies, belonging to the industry, are well-positioned to gain from the growing clean energy demand from data centers. This is because, employing their pipeline networks, the midstream companies can transport natural gas to gas-fired power plants, which will provide electricity to the data centers.
Growth Capital Pipeline: Companies in the industry are expected to generate incremental cash flow from billions of dollars in key capital projects that are either in service or set to come online.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Oil and Gas - Production and Pipelines is a 10-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #87, which places it in the top 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
With the prospects remaining favorable, we present a few stocks that investors can retain or keep an eye on, given their solid potential. But before that, let us take a look at the industry’s recent stock market performance and its current valuation.
Industry Outperforms S&P 500, Lags Sector
The Zacks Oil and Gas - Production and Pipelines industry has outperformed the Zacks S&P 500 Composite, but lags the broader Zacks Oil - Energy sector over the past year.
The industry has jumped 22.2% over this period compared with the 20.6% rise of the S&P 500 and 31.9% surge of the broader sector.
One-Year Price Performance
Industry's Current Valuation
Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), a commonly used multiple for valuing oil and gas production and pipeline stocks, the industry is currently trading at 14.66X, lower than the S&P 500’s 17.91X. It is, however, above the sector’s trailing 12-month EV/EBITDA of 6.45X.
Over the past five years, the industry has traded as high as 14.85X, as low as 11.19X and at a median of 12.87X.
Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
3 Oil & Gas Pipeline Stocks Well Poised to Gain
Kinder Morgan: The company is a North American midstream energy major, deriving stable fee-based revenues. KMI has a strong growth potential from growing liquefied natural gas (LNG) demand across the globe. This is because Kinder Morgan, carrying a Zacks Rank #3 (Hold), is responsible for transporting almost 40% of the natural gas that is being supplied to the LNG export facilities of the United States.
Price and Consensus: KMI
Enbridge: The midstream giant’s business model has very low exposure to oil and natural gas price volatility, making its cash flow generation highly predictable. ENB, with a Zacks Rank of 3, stated that a significant proportion of its earnings from core operations is generated from either long-term contracts with guaranteed minimum payments or midstream networks with regulated cash flows.
Unlike upstream energy companies, Enbridge’s operations are immune to price volatility to a great extent. Thus, cash flow generation from ENB’s midstream activities is highly predictable.
Price and Consensus: ENB
The Williams Companies: The company is also a leading midstream player, well-positioned to capitalize on increasing clean energy demand. This is because WMB has a massive network of natural gas transportation pipelines that transport roughly 33% of the total natural gas used in the United States.
View the Zacks #1 Rank List
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3 Oil Pipeline Stocks Capitalizing on Solid Industry Fundamentals
The oil and gas pipeline players have billions of dollars in key capital projects that could generate incremental cash flows. Also, rising clean energy demand from the data centers is brightening the prospects for natural gas transportation companies, enhancing the Zacks Oil and Gas - Production and Pipelines industry’s outlook.
The companies belonging to the industry are also benefiting from stable fee-based revenues, since most of the contracts are for the long term. Key players in this industry include Enbridge Inc. (ENB - Free Report) ,Kinder Morgan, Inc. (KMI - Free Report) and The Williams Companies Inc. (WMB - Free Report) .
About the Industry
The Zacks Oil and Gas - Production and Pipelines industry comprises companies that own and operate midstream energy infrastructure assets. The properties consist of extensive pipeline networks that transport crude oil, liquids and natural gas. The midstream energy players are also involved in the processing and storing of natural gas. The companies have interests in natural gas distribution utilities, serving millions of retail customers across North America. Some companies are ramping up investments in renewable energy and power transmission businesses. The firms invested in wind farms, solar energy operations, geothermal projects and hydroelectric facilities. Thus, with a diversified portfolio of renewable energy projects, the firms have room to generate extra cash flows in addition to stable fee-based revenues from transportation assets.
What's Shaping the Future of Oil & Gas - Production & Pipelines Industry?
Stable Cash Flow Generations: The midstream assets are usually booked by shippers for the long term, thereby generating stable cash flows. The long-term contracts are mostly take-or-pay contracts, meaning shippers have to pay a minimum amount even if they don’t utilize the midstream assets. Thus, cash flow generations are highly predictable, suggesting that the business model is not very vulnerable to volatility in oil and natural gas prices.
Rising Demand From Data Centers: The natural gas transportation companies, belonging to the industry, are well-positioned to gain from the growing clean energy demand from data centers. This is because, employing their pipeline networks, the midstream companies can transport natural gas to gas-fired power plants, which will provide electricity to the data centers.
Growth Capital Pipeline: Companies in the industry are expected to generate incremental cash flow from billions of dollars in key capital projects that are either in service or set to come online.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Oil and Gas - Production and Pipelines is a 10-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #87, which places it in the top 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
With the prospects remaining favorable, we present a few stocks that investors can retain or keep an eye on, given their solid potential. But before that, let us take a look at the industry’s recent stock market performance and its current valuation.
Industry Outperforms S&P 500, Lags Sector
The Zacks Oil and Gas - Production and Pipelines industry has outperformed the Zacks S&P 500 Composite, but lags the broader Zacks Oil - Energy sector over the past year.
The industry has jumped 22.2% over this period compared with the 20.6% rise of the S&P 500 and 31.9% surge of the broader sector.
One-Year Price Performance
Industry's Current Valuation
Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), a commonly used multiple for valuing oil and gas production and pipeline stocks, the industry is currently trading at 14.66X, lower than the S&P 500’s 17.91X. It is, however, above the sector’s trailing 12-month EV/EBITDA of 6.45X.
Over the past five years, the industry has traded as high as 14.85X, as low as 11.19X and at a median of 12.87X.
Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
3 Oil & Gas Pipeline Stocks Well Poised to Gain
Kinder Morgan: The company is a North American midstream energy major, deriving stable fee-based revenues. KMI has a strong growth potential from growing liquefied natural gas (LNG) demand across the globe. This is because Kinder Morgan, carrying a Zacks Rank #3 (Hold), is responsible for transporting almost 40% of the natural gas that is being supplied to the LNG export facilities of the United States.
Price and Consensus: KMI
Enbridge: The midstream giant’s business model has very low exposure to oil and natural gas price volatility, making its cash flow generation highly predictable. ENB, with a Zacks Rank of 3, stated that a significant proportion of its earnings from core operations is generated from either long-term contracts with guaranteed minimum payments or midstream networks with regulated cash flows.
Unlike upstream energy companies, Enbridge’s operations are immune to price volatility to a great extent. Thus, cash flow generation from ENB’s midstream activities is highly predictable.
Price and Consensus: ENB
The Williams Companies: The company is also a leading midstream player, well-positioned to capitalize on increasing clean energy demand. This is because WMB has a massive network of natural gas transportation pipelines that transport roughly 33% of the total natural gas used in the United States.
With a Zacks Rank of 3 at present, The Williams Companies also serves the rising power demand from the expanding data centers. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: WMB