Citi Confirms Buy Rating for ONEOK at $102 Target Amid Growth

Citi Updates ONEOK's Outlook with Positive Growth Indicators

Recently, Citi reaffirmed its Buy rating on ONEOK Inc (NYSE: OKE) while maintaining its price target at an optimistic $102. This comes on the heels of their analysis for the upcoming third-quarter EBITDA, which is projected at $1.57 billion. While this forecast is slightly beneath the consensus estimate of $1.58 billion, the adjustments reflect a considered outlook amid changing market conditions.

Understanding the EBITDA Forecast and Its Implications

The slight anticipated decrease in EBITDA from the previous quarter is attributed largely to the absence of one-time gains that positively impacted the second quarter of 2024. During that time, ONEOK benefited from a significant $53 million gain from asset sales, which analysts do not expect to recapture in the near future.

Marketing Gains and Inventory Strategies

Moreover, a $46 million surge in marketing across both refined products and crude was evident in the second quarter, likely owing to seasonal patterns. Nevertheless, as ONEOK leverages synergies from its acquisition of Magellan Midstream Partners, substantial marketing gains are projected moving forward. Despite the anticipated reduction in certain revenue streams, inventory optimization strategies may help stabilize overall results.

Recent Developments and Future Growth Potential

In light of recent acquisitions, including Easton, Citi anticipates a comprehensive update to ONEOK's guidance, with management indicating expectations that could trend toward the higher end of their current range. The actual impact of these acquisitions—including Medallion and ENLC—on the guidance will hinge on the finalization timing of the transactions.

Strategic Adjustments to Buyback Program

Interestingly, there have been reports that the recent developments might postpone ONEOK's share buyback initiatives by a few quarters. This shifting timeline is seen as a proactive measure in response to the company's recent strategic communications and operational adjustments.

Strengthening Financial Position Through Debt Offering

In a significant financial maneuver, ONEOK has completed a debt offering totaling $6.9 billion, primarily aimed at securing interests in EnLink Midstream, LLC and Medallion Midstream, LLC. This sizable offering is expected to reinforce ONEOK's standing within the midstream energy sector.

Market Reactions and Analyst Ratings

Recently, Morgan Stanley has upgraded ONEOK's rating from Equalweight to Overweight, recognizing the growth potential stemming from the company's controlling interest acquisition of Enable Midstream Partners. Conversely, CFRA downgraded the stock from Buy to Hold due to concerns regarding company valuation, although it did revisit the price target.

Strategic Acquisitions Driving Long-Term Growth

Both Stifel and Citi remain optimistic, sustaining their Buy ratings on ONEOK. The strategic acquisitions are poised to bolster ONEOK's long-term EBITDA by over $2 billion, while also enhancing free cash flow by an estimated 20% by the year 2028.

Impressive Second Quarter Results

In further good news, ONEOK's second-quarter results revealed a remarkable 28% year-over-year increase in net income, totaling $780 million—surpassing expert expectations and demonstrating robust operational health amidst earlier challenges.

Analyzing ONEOK's Financial Metrics in Context

ONEOK's current financial metrics present a fascinating backdrop to Citi's favorable analysis. As of mid-2024, the company's market capitalization stands at a commanding $55.32 billion, accompanied by a P/E ratio of 20.48, which reflects a moderate valuation relative to earnings. Impressively, ONEOK reported revenues of $19.1 billion for the previous twelve months, showcasing a quarterly revenue growth of 31.14% in Q2 2024.

Profitability and Dividend Insights

The company has also demonstrated robust profitability metrics, boasting a gross profit margin of 37.76% and an operating income margin of 22.46%. These figures correlate well with Citi's positive outlook for the company and support its Buy rating.

As noted by analysts, ONEOK has maintained a consistent dividend yield of 4.24%, underscoring its commitment to returning value to shareholders—a factor that resonates powerfully with income-oriented investors. Furthermore, ONEOK's stock has notably outperformed the S&P 500 over the past year, achieving a total return of 58.9%. The stock is currently trading at 98.7% of its 52-week high, indicating robust investor confidence within the sector.

Frequently Asked Questions

What is ONEOK's current price target according to Citi?

Citi has set a price target of $102 for ONEOK, reaffirming its Buy rating amidst ongoing growth assessments.

How did ONEOK's second-quarter results fare compared to last year?

ONEOK's second-quarter results showed a substantial 28% year-over-year increase in net income, reaching $780 million, which surpassed analyst expectations.

What factors contributed to the projected decrease in EBITDA?

The projected decrease is largely due to the absence of one-off gains seen in previous quarters, particularly a significant asset sale gain from the second quarter.

How is ONEOK planning to manage its share buyback program?

Recent developments indicate that ONEOK may delay its share buyback program by several quarters, responding strategically to market conditions and operational adjustments.

What role do recent acquisitions play in ONEOK's outlook?

Recent acquisitions are expected to contribute significantly to ONEOK's EBITDA growth, estimated at over $2 billion, while also aiming for a 20% increase in free cash flow by 2028.

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