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3 Oil & Gas Pipeline Stocks to Weather Industry Headwinds
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Unlike exploration and production operations, the midstream energy space is generally less vulnerable to fluctuations in oil and natural gas prices. Despite this, the outlook for the Zacks Oil and Gas - Production and Pipelines industry is gloomy, primarily due to the conservative spending of upstream companies, which is likely to continue hurting the demand for transportation and storage assets.
Players in the industry like Kinder Morgan, Inc. (KMI - Free Report) , The Williams Companies Inc. (WMB - Free Report) and MPLX LP (MPLX - Free Report) are well-positioned to sail through the prevailing uncertainties.
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?
High Debt Load: The industry is inherently capital-intensive, as evident from the debt-to-capitalization ratio of 58.54%, where borrowing is a common practice to finance large infrastructure projects. However, elevated leverage can constrain financial flexibility, hindering midstream energy companies' capacity to invest in new developments, navigate economic downturns, or address unforeseen costs.
Shift to Renewables: Energy majors will increasingly face challenges in providing sustainable energy to the world while reducing greenhouse gas emissions. To address the issues of climate change, there will be a gradual shift from fossil fuels to renewable energy. This will lower the demand for the partnerships’ pipeline and storage networks for oil and natural gas.
Explorers’ Conservative Capital Spending: Oil and gas exploration and production companies are facing heightened pressure from investors to focus on stockholders’ returns rather than production. This is hindering the production growth of commodities, thereby denting the demand for pipeline and storage assets.
Zacks Industry Rank Indicates Gloomy 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 #182, which places it in the bottom 26% 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 bleak 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.
Although the prospects remain unfavorable, 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 Lags S&P 500 & Sector
The Zacks Oil and Gas - Production and Pipelines industry has underperformed the Zacks S&P 500 Composite and the broader Zacks Oil - Energy sector over the past year.
The industry has jumped 17.9% over this period compared with the 22.6% surge of the S&P 500 and the 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 14.64X, lower than the S&P 500’s 18.09X. It is, however, above the sector’s trailing 12-month EV/EBITDA of 6.00X.
Over the past five years, the industry has traded as high as 15.61X, as low as 10.27X and at a median of 13.18X.
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 the increasing liquefied natural gas (LNG) demand across the globe. This is because Kinder Morgan, carrying a Zacks Rank #2 (Buy), 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
MPLX: MPLX’s midstream business comprises transporting crude oil and refined products. The partnership, carrying a Zacks Rank #3 (Hold), generates stable cash flows from its long-term contracts with the shippers. Its crude oil and natural gas gathering systems also generate stable fee-based revenues.
Price and Consensus: MPLX
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 & Gas Pipeline Stocks to Weather Industry Headwinds
Unlike exploration and production operations, the midstream energy space is generally less vulnerable to fluctuations in oil and natural gas prices. Despite this, the outlook for the Zacks Oil and Gas - Production and Pipelines industry is gloomy, primarily due to the conservative spending of upstream companies, which is likely to continue hurting the demand for transportation and storage assets.
Players in the industry like Kinder Morgan, Inc. (KMI - Free Report) , The Williams Companies Inc. (WMB - Free Report) and MPLX LP (MPLX - Free Report) are well-positioned to sail through the prevailing uncertainties.
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?
High Debt Load: The industry is inherently capital-intensive, as evident from the debt-to-capitalization ratio of 58.54%, where borrowing is a common practice to finance large infrastructure projects. However, elevated leverage can constrain financial flexibility, hindering midstream energy companies' capacity to invest in new developments, navigate economic downturns, or address unforeseen costs.
Shift to Renewables: Energy majors will increasingly face challenges in providing sustainable energy to the world while reducing greenhouse gas emissions. To address the issues of climate change, there will be a gradual shift from fossil fuels to renewable energy. This will lower the demand for the partnerships’ pipeline and storage networks for oil and natural gas.
Explorers’ Conservative Capital Spending: Oil and gas exploration and production companies are facing heightened pressure from investors to focus on stockholders’ returns rather than production. This is hindering the production growth of commodities, thereby denting the demand for pipeline and storage assets.
Zacks Industry Rank Indicates Gloomy 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 #182, which places it in the bottom 26% 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 bleak 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.
Although the prospects remain unfavorable, 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 Lags S&P 500 & Sector
The Zacks Oil and Gas - Production and Pipelines industry has underperformed the Zacks S&P 500 Composite and the broader Zacks Oil - Energy sector over the past year.
The industry has jumped 17.9% over this period compared with the 22.6% surge of the S&P 500 and the 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 14.64X, lower than the S&P 500’s 18.09X. It is, however, above the sector’s trailing 12-month EV/EBITDA of 6.00X.
Over the past five years, the industry has traded as high as 15.61X, as low as 10.27X and at a median of 13.18X.
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 the increasing liquefied natural gas (LNG) demand across the globe. This is because Kinder Morgan, carrying a Zacks Rank #2 (Buy), 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
MPLX: MPLX’s midstream business comprises transporting crude oil and refined products. The partnership, carrying a Zacks Rank #3 (Hold), generates stable cash flows from its long-term contracts with the shippers. Its crude oil and natural gas gathering systems also generate stable fee-based revenues.
Price and Consensus: MPLX
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