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Williams Companies’ Earnings Look Weak Before Q2

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We expect Williams Companies (WMB) to report its second-quarter earnings on Wednesday after markets close. Based on the consensus estimates, the company will likely report an adjusted EBITDA of $1.22 billion in the quarter ending June 30. In the second quarter of 2018, Williams Companies posted an adjusted EBITDA of $1.11 billion. The adjusted EBITDA represents approximately 10% growth YoY (year-over-year). In the first quarter, the company reported an EBITDA of $1.20 billion.

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Williams Companies is oversold

Recently, Williams Companies stock has been weak. The stock has lost more than 15% in the last two weeks. Natural gas prices have also been weak. On Monday, UBS cut Williams Companies’ target price from $39.0 to $36.0. Currently, the stock is trading at record oversold levels with its relative strength index at 8. We’ll have to see if Williams Companies’ second-quarter earnings revive its stock.

Earnings drivers

According to analysts’ estimates, Williams Companies will likely report total revenues of $2.12 billion in the second quarter. The estimates suggest an increase of just over 1% compared to its revenues in the second quarter of 2018. The company’s Atlantic-Gulf segment drove its earnings in the last quarter. The segment forms almost half of the company’s adjusted EBITDA. The expansions at the Transco pipeline mainly drove the performance in the last few quarters.

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The Atlantic Sunrise project, which carries natural gas to South Carolina from Pennsylvania, became operational in the fourth quarter of 2018. Notably, the project boosted revenues in the last quarter. The Gulf Connector project, which expands Transco pipeline’s delivery capacity by 475 MMcf/d (million cubic feet per day), came into service January.

Williams Companies’ West segment has been struggling for the last few quarters. Lower gathering volumes driven by harsh weather and unfavorable NGL margins caused lower contributions from the segment in the first quarter. On July 24, Williams Companies stated that it acquired and placed the Norphlet deepwater gathering pipeline system into service. The 16-inch pipeline is capable of gathering approximately 261 MMcf/d–291 MMcf/d of natural gas.

Williams Companies expects strong demand for natural gas in 2019 due to power generation projects. The company carries approximately 30% of the total natural gas volumes in the country. The natural gas demand will likely increase approximately 5% compounded annually through 2021. Williams Companies aims to grow its adjusted earnings by 8% in 2019 compared to last year and 5%–7% annually in the long term. To learn more, read Comparing Williams Companies’ Dividend Yield with Its Peers.

Kinder Morgan missed earnings estimates

Kinder Morgan (KMI) reported an adjusted EBITDA of $1.82 billion in the second quarter—a fall of almost 2% from the second quarter of 2018. RBC raised Kinder Morgan’s target price from $20.0 to $21.0 on Tuesday. Kinder Morgan stock has shown a significant upward move this year. So far, the stock has risen about 36%.

Analysts seem positive on Williams Companies stock. Among the 21 analysts covering Williams Companies, ten recommended a “buy” and nine recommended a “strong buy.” Two analysts recommended a “hold,” and none of them recommended a “sell” as of Tuesday. Analysts have given the company a mean target price of $31.7, which indicates a potential upside of more than 28% for the next 12 months. Currently, the stock is trading at $24.8.

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