Barclays analysts downgraded ONEOK Inc. to "equal weight" from "overweight," sounding a note of caution on the valuation of a company whose stock has more than doubled year-to-date.
Christine Cho and colleagues said the gas and oil midstream company is trading at about 14.2x enterprise value/EBITDA as of Dec. 12, compared to a 12.5x multiple among its peers. ONEOK stock has shot up to $57.21 as of the Dec. 12 close from $24.66 at the end of 2015. Barclays raised its price target for ONEOK to $58 from $49.
The group also increased its target for ONEOK's master limited partnership, ONEOK Partners LP, to $45 from $41, based on a projection that ONEOK and the MLP will both trade at a multiple of 13.5x in 2018. "[T]he Oneok complex has to generate ~$180 million of incremental EBITDA above what we are currently modeling in 2018 to justify the premium," they said in a Dec. 13 note.
Management quoted an EBITDA uplift of about $200 million for its potential ethane recovery by 2019. Cho and her team said the Tulsa, Okla.-based company can garner that sum from various sources, including incremental Permian volumes, natural gas liquids volumes in the Bakken and gas pipeline build-out opportunities in the STACK basin. "However, the stock is already pricing it in and without much color about what the opportunity set is beyond this, we think the stock is fairly valued at these levels," the analysts wrote.
ONEOK's stock has catapulted by about 132% year-to-date as investors bought into its potential in the SCOOP/STACK oil and gas play in Oklahoma and the foreseen EBITDA jump, as well as other tailwinds, including a ramp-up in volumes and yet-to-be-announced low-cost expansions.
Meanwhile, ONEOK Partners, which began recovering ethane during the second quarter, has seen a nearly 40% boost in its stock value year-to-date.