For Immediate Release
Chicago, IL – January 10, 2022 – Today, Zacks Equity Research discusses Kinder Morgan, Inc. (
KMI Quick Quote KMI - Free Report) , The Williams Companies Inc ( WMB Quick Quote WMB - Free Report) and MPLX LP ( MPLX Quick Quote MPLX - Free Report) .
Industry: Oil - Pipelines
The midstream energy activity has a significantly lower exposure to coronavirus-induced energy business uncertainty due to the very nature of the business model. Hence, despite Omicron spreading rapidly worldwide, the outlook for the Zacks
Oil and Gas - Production & Pipelines industry is bright.
Pipeline players are better off than upstream and downstream firms since the companies are generating stable fee-based revenues from their long-term contracts with shippers.
Kinder Morgan, Inc., The Williams Companies Inc and MPLX LP are among the frontrunners in the industry that are leading the pack. About the Industry
The Zacks Oil and Gas - Production & 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 processing and storing 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 midstream companies have room to generate extra cash flows in addition to stable fee-based revenues from the transportation and storage assets.
What's Shaping the Future of Oil & Gas - Production and Pipelines Industry? : Although Omicron is spreading speedily across the world, most analysts expect the effect of this coronavirus variant to be mild. OPEC and its non-OPEC allies, collectively called OPEC+, reassured a limited Omicron impact on the energy business, leading to a rally in energy stocks. The bullish outlook for energy business is also getting reflected in favorable commodity prices, paving the way for exploration, production and drilling activities to continue to improve. This, in turn, will increase production volumes, improving demand for the pipeline and storage assets. Pipeline Demand to Improve Most pipeline and storage assets are being booked by shippers for a long term, making midstream business less vulnerable to coronavirus-induced volatility in commodity prices. Backed by long-term contracts, the companies belonging to the industry are also having a minimal oil and gas volume risk. Owing to these factors, pipeline players will continue to generate stable fee-based revenues. Stable Fee-Based Revenues: Many pipeline companies in the industry have a huge backlog of growth projects worth billions of dollars. The projects are going to come online in a few years, securing additional cashflows for the pipeline players. Impressive Project Backlog: Oil and gas pipeline stocks are paying attractive dividend yields. Compared to the overall energy sector, companies belonging to the industry as a whole have been rewarding their shareholders with significantly higher dividend yields over the past few years, providing reassurance that the midstream business is relatively more stable than upstream and downstream operations. Attractive Dividend Yield: Zacks Industry Rank Indicates Bright Prospects
The Zacks Oil and Gas - Production & Pipelines is a 13-stock group within the broader Zacks
Oil - Energy sector. The industry currently carries a Zacks Industry Rank #74, which places it in the top 29% of more than 250 Zacks industries.
Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates rosy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries results from a positive earnings outlook for the constituent stocks in aggregate. Before we present a few stocks that you may want to consider, let’s look at the industry’s recent stock-market performance and its valuation picture.
Industry Lags Sector & S&P 500
The Zacks Oil and Gas - Production & Pipelines has lagged both the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.
The industry has risen 14.9% over this period compared with the 20.7% and 23.4% improvement of the broader sector and the S&P 500, respectively.
Industry's Current Valuation
Based on the trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing oil and gas production & pipeline stocks, the industry is currently trading at 12.65X, lower than the S&P 500’s 15.81X. It is, however, above the sector’s trailing-12-month EV/EBITDA of 4.58X.
Over the past five years, the industry has traded as high as 18.91X, as low as 8.59X and at a median of 13.52X.
3 Oil & Gas Pipeline Stocks Leading the Pack MPLX LP:MPLX generates stable cashflows and has lower exposure to commodity price volatility since it is the operator of midstream energy infrastructure and logistics assets. MPLX LP also generates cashflows from relatively stable fuels distribution business.
Over the past 60 days, MPLX has witnessed upward earnings estimate revisions for 2021 and 2022, respectively. MPLX, currently carrying a Zacks Rank #2 (Buy), has attractive organic growth capital projects and is also pursuing low carbon opportunities. You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Kinder Morgan: With its operating interests in oil and gas pipeline networks, spread across 83,000 miles, Kinder Morgan is a leading energy infrastructure company in North America. KMI generates most of its earnings from take-or-pay contracts, thereby generating stable fee-based revenues.
Kinder Morgan currently has a Zacks Rank #3 (Hold) and gained 17.5% in the past year. KMI is poised to grow more on the back of its business model, which is relatively resilient to volume and commodity price risks.
The Williams Companies Inc: The Williams Companies is well poised to capitalize on mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.
With its pipeline networks spread across more than 30,000 miles, The Williams Companies connects premium basins in the United States to the key market. With a Zacks Rank of 2 at present, WMB’s assets can fulfill 30% of the nation’s natural gas consumption, utilized for heating purposes and clean-energy generations.
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