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ONEOK's Partnership Drives Growth, Compliance Costs High

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On Nov 16, 2016, we issued an updated research report on ONEOK Inc. (OKE - Free Report) .The company’s primary growth vehicle is ONEOK Partners given the steady rise in distribution at the partnership. However, strict regulations and intense competition in the midstream energy services space are major concerns for the company.

Recently, ONEOK reported third-quarter 2016 operating earnings of 44 cents per share, outpacing the Zacks Consensus Estimate of 43 cents by 2.3%. Moreover, its total revenue of $2,358 million exceeded the Zacks Consensus Estimate of $2,077 million by 13.5%. Revenues also jumped 24.2% from $1,899 million in the prior-year quarter.

In the third quarter of 2016, the company obtained $197.5 million as distribution from ONEOK Partners. ONEOK Partners’ financial strength, diversified operations, excellent market connectivity and systematic investments in organic projects and strategic acquisitions provide the company a distinct competitive advantage. Through this business wing, ONEOK focuses on maintaining a stable inflow of cash, predominantly as distribution.

On the flip side, ONEOK’s operations are subject to various federal, state and local environmental regulations. Utility regulatory authorities of Oklahoma, Kansas and Texas regulate many aspects of the company’s utility operations, including customer service and rates charged to customers. The company’s profitability thus depends largely on its ability to recover costs related to providing energy and other commodities to customers by obtaining the required regulatory approvals. Moreover, ONEOK expects costs of compliance to be significantly high, going forward.

Zacks Rank & Key Picks

ONEOK carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same space include Atmos Energy Corporation (ATO - Free Report) and ONE Gas, Inc. (OGS - Free Report) .

Atmos Energy has seen one upward estimate revision for fiscal 2017 over the last 30 days. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ONE Gas, another Zacks Rank #2 stock, has seen three upward estimate revisions for the 2016 over the last 30 days.

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