Williams Companies (WMB), the midstream C corporation general partner of Williams Partners (WPZ), was upgraded by Morgan Stanley from “equal-weight” to “overweight,” which is equivalent to a “buy.” Before this, RBC Capital Markets chose Williams Companies among eight MLP picks for 2017.
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Williams Companies has gained 176% since its February lows and 53.8% since the merger termination announcement with Energy Transfer Equity at the end of June 2016. According to Morgan Stanley’s recent target price estimate of $35, the C corporation still has an upside potential of ~14% from its current price levels.
Williams Companies rose 20.0% YTD (year-to-date). In comparison, its peers Energy Transfer Equity (ETE), Enbridge (ENB), and Spectra Energy (SE) rose 30.7%, 28.3%, and 73.1%, respectively, in 2016. The Alerian MLP ETF (AMLP), which is compromised of 26 midstream energy MLPs, rose 2.5% in 2016. However, Williams Companies and most of its peers are still trading below the levels before the rout in energy prices.
Williams Companies’ strong YTD gains despite dividend cuts indicate that investors are rewarding companies for improved balance sheet positions. They aren’t penalizing dividend cuts in the current low energy price environment. Williams Companies and its subsidiary, Williams Partners, took a few measures to lower their leverage and commodity price exposure. The Williams franchise is aiming to lower its commodity price exposure through divestures. It wants to strengthen its natural gas–focused strategy.
According to Tom Abrams, an analyst at Morgan Stanley, “We believe that the risk-reward skew at WMB has greatly improved after stabilizing the underlying business via recontracting gathering contracts, selling assets, and refreshing the board.” Recently, Williams Companies appointed two new directors to its board of directors.
Currently, Williams Companies is trading 2.6% above its 50-day moving average and 25.1% above its 200-day moving average. The 50-day moving average surpassed the 200-day moving average in August 2016. It indicates a bullish trend in Williams Companies stock.