Williams Analysis: the oil company that's driving Wall Street crazy
An oil company that the market absolutely does not value on its merits? Are you also saying that this is impossible? Then see for yourself!
Williams $WMB is an American company founded in 1908 and headquartered in Oklahoma. The company specializes in the production, transportation and storage of natural gas and crude oil. Williams is also active in renewable energy and has interests in solar and hydroelectric power.
Williams' core business is the transportation of natural gas and oil. The company owns and operates natural gas and crude oil transportation networks in several areas in the U.S. and the Gulf of Mexico. Williams also owns and operates terminals for the storage and distribution of crude oil and natural gas.
Williams is also seeking to diversify into renewable energy sources such as solar and hydroelectric power. The company is also working to reduce its environmental impact and implement sustainability measures.
Fluctuations in oil and gas prices: Williams is dependent on the production and transportation of natural gas and crude oil, which are commodities with large price fluctuations. A decline in oil and natural gas prices can understandably have a negative impact on the Company's revenue and earnings.
Government regulation: the energy sector is heavily regulated by the government and changes in regulation can have a significant impact on Williams' performance. For example, increased taxes, fees and regulations can reduce a company's profits and limit its expansion.
Competition in the Energy Sector: The energy sector is highly competitive and Williams faces competition from other companies in the production, transportation and storage of natural gas and oil. In addition, with the advent of new technologies.
Risks associated with investments in renewable energy: This point is related to the last sentence of the previous one. Williams is looking to diversify into renewable energy sources such as solar and hydroelectric power. However, investing in these areas may involve risks such as technological risks and the need for large investments.
Climate change: climate change may have a negative impact on the energy sector and on Williams. For example, extreme weather can cause interruptions in power supply and reduce the company's performance.t.
What is so special about it?
The company offers a compelling combination of investment characteristics.
Analysts are not afraid to use terms like it stands out from the crowd. It offers investors a unique combination of earnings and growth for a company of its size, financial strength and environmental, social and governance(ESG) quality, making it an attractive investment opportunity.
Here's a closer look at how this natural gas infrastructure company stacks up against other companies in the S&P 500.
Williams has an excellent track record. The company has steadily increased its profits over the years, allowing it to pay an attractive (and steadily growing) dividend.
The dividend is nice. It's currently 7.18%. The company also has a solid track record of growing that dividend. It has been increasing the payout at a compound annual rate of 6% since 2018.
Williams has been able to steadily increase its payout to shareholders because it has consistently increased its earnings before interest, taxes, depreciation, and amortization (EBITDA). Over the past decade, less than 12.5% of S&P 500 index members have expanded their adjusted EBITDA each year.
Williams' earnings and consistency add to its other attractive investment characteristics and allow it to rise to the top.
The company continues to differentiate itself from others due to its consistent growth performance. Only 44 S&P 500 companies with the scale, credit quality and ESG characteristics of Williams have also achieved consistent annual EBITDA growth over the past decade .
Finally, where Williams really shines is in its valuation. As noted, the company has one of the ten highest dividend yields in the S&P 500. This is partly due to its low valuation compared to the broader market. Williams expects to generate $3.86 to $4.18 per share of adjusted funds from operations (FFO) this year, which is a good indicator of free cash flow. That gives it a free cash flow yield of more than 13%. The free cash flow yield in the S&P 500 is 5%. Since a lower yield means a more expensive valuation, Williams is much cheaper than the broader market.
This high free cash flow yield shows the strength of Williams' high-yielding dividend. With a dividend yield at half that level, Williams generates enough free cash flow to cover this large payout more than twice over the course of this year. This allows it to retain excess cash to help fund further expansion while maintaining a strong balance sheet.
Williams currently has an extensive capital program. It has several natural gas pipeline projects under construction. It is also expanding its gathering and processing operations and adding five large offshore projects in the Gulf of Mexico to its extensive infrastructure in the region. These investments are preparing the company for a breakthrough year in 2025 and continued growth through 2025. Overall, Williams expects its Adjusted EBITDA to grow by 5% to 7% annually over the long term, which should allow it to continue to grow its substantial dividend.
Williams offers a compelling combination of growth and income at a value price. These characteristics make it well positioned to deliver attractive total returns to investors. Add to this its other quality characteristics. Even according to analysts, this is one of the most attractive investment opportunities in the S&P 500 these days.
With great operating fundamentals and a depressed stock price, the market seems to be irrationally valuing WMB at the moment, giving an excellent opportunity to value and dividend growth investors.
Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.