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Williams Downgraded to Strong Sell

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Zacks Investment Research downgraded North American energy firm Williams Companies Inc. (WMB - Free Report) to Zacks Rank #5 (Strong Sell) on Mar 6.

Why the Downgrade?

Williams witnessed sharp downward estimate revisions after reporting disappointing fourth-quarter 2012 results. In fact, Williams delivered negative earnings surprises in the third and fourth quarters with a miss of 7.41% and 3.85%, respectively.  

On Feb 20, 2013, Williams registered fourth-quarter 2012 earnings per share (excluding special items) of 25 cents, missing the Zacks Consensus Estimate of 26 cents. Earnings per share also deteriorated 30.6% from the year-ago adjusted profit level of 36 cents.

Lower natural gas liquid (NGL - Free Report) margins and higher development cost related to an earlier acquisition were responsible for the fall in earnings.

Among the company’s segments, Williams Partners adjusted operating profit was $449.0 million, down approximately 17.2% from the year-ago level of $542.0 million. Moreover, Williams NGL & Petchem Services segments’ quarterly adjusted operating profit decreased 22.9% year over year to $27.0 million.      

The expected bearish natural gas fundamentals over the next few quarters and excessive domestic gas supplies have made investors cautious toward the stock. As a result, the Zacks Consensus Estimate for the first quarter of 2013 decreased 10.7% to 25 cents per share over the last 30 days. For 2013, most of the estimates (8 out of 10) were revised downward over the last 30 days, lowering the Zacks Consensus Estimate by 14.5% to $1.00 per share.

Other Stocks to Consider

Not all energy stocks are performing as poorly as Williams. The stocks of Range Resources Corp. (RRC - Free Report) , Enerplus Corporation (ERF - Free Report) and NGL Energy Partners LP (NGL - Free Report) are worth considering. All three carry a Zacks Rank #1 (Strong Buy) signifying that these stocks will outperform the broader U.S. equity market over the next 1 to 3 months.

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