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Williams Companies: What Could Lift Its Ailing Stock?

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Williams Companies (WMB) stock fell for the seventh consecutive day on Wednesday and closed almost at an 11-month low. Midstream stocks are trading weak due to subdued oil and natural gas prices. Despite better-than-expected earnings in the third quarter, the stock didn’t gain momentum.

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Williams Companies stock still looks weak

Currently, Williams Companies stock is trading at $22.0, which is almost 6% and 16% below its 50-day and 200-day moving average levels, respectively. Overall, the large difference between the stock price and these key levels indicates the weakness in the stock. The 50-day level around $23.50 might act as a resistance for the stock in the short term.

The stock is trading close to an oversold zone with its RSI (relative strength index) at 32. Extreme RSI levels above 70 and below 30 indicate that the stock might see a trend reversal. The stock is trading close to its levels in early 2019.

The stock has rallied about 8% since its 52-week low of $20.36 in December. Williams Companies stock has fallen more than 26% from its 52-week high of $29.55 in April.

Q3 earnings

Williams Companies reported an adjusted EBITDA of $1.27 billion in the third quarter—an increase of approximately 7% YoY. The company’s revenues are still a concern for investors. The revenues fell almost 5% YoY to $2 billion in the third quarter. Notably, the revenues fell for the fourth consecutive quarter. The dividend coverage ratio also fell to 1.78x in the third quarter from 1.85x in the third quarter of 2018.

The recent fall made Williams Companies’ dividend yield look attractive. Currently, the company yields close to 7%, which is higher than its five-year average. The company’s distributable cash flow increased 8% YoY to $822 million in the third quarter.

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The stock is trading at an EV-to-EBITDA valuation of 10x its estimated earnings for the next 12 months. The valuation appears to be trading at a discount compared to its historical average. The company’s five-year valuation average is around 17x. Williams Companies is placed fairly compared to peers’ average of 12x. Top midstream stock Kinder Morgan (KMI) is trading at a forward EV-to-EBITDA valuation of 11x. Kinder Morgan stock has risen about 40% YTD.

Analysts’ target prices

Analysts seem largely positive on Williams Companies stock. They have given the stock a mean target price of $28.41, which suggests an estimated upside of 29% for the next year.

Among the 23 analysts covering Williams Companies, 11 recommend a “buy,” seven recommend a “strong-buy,” and five recommend a “hold.” However, none of the analysts recommend a “sell” as of today.

Kinder Morgan offers an estimated upside of 9% based on its current market price of $20.35. Analysts have given Kinder Morgan stock a mean target price of $22.10.

Among 23 analysts tracking Kinder Morgan, 11 recommend a “hold,” eight recommend a “buy,” and four recommend a “strong buy.”

To learn more about energy midstream stocks, read Top Midstream Energy Stocks: What Analysts Got Wrong.

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