We expect Williams Companies (WMB) to continue to benefit from its diversified asset base and growing demand for natural gas, and believe that the stock is favorably valued at current levels, suggests Bill Selesky, an analyst with Argus Research.

The North America energy infrastructure company owns interests in or operates 15,000 miles of interstate gas pipelines, 1,000 miles of NGL transportation pipelines, and more than 10,000 miles of oil and gas gathering pipelines.

The company’s diversified asset base is largely protected by long-term, take-or-pay contracts, which help to reduce commodity price risk. We expect continued growth in natural gas demand over the next several years, despite some replacement of gas by renewables.

Over the past decade, natural gas has helped to lower overall carbon emissions in the U.S., as domestic natural gas prices had fallen by approximately 80% over that time. In response, natural gas usage expanded and coal consumption has dropped by nearly 55%.

However, over the past 12-18 months, natural gas prices have reversed course and trended significantly higher, helped by strong domestic U.S. demand and international export markets.

We expect U.S. natural gas demand to grow 10% over the next 10 years, with peak demand sometime in 2026-2027, and look for WMB to be a major beneficiary of this trend. We remain bullish on natural gas prices and bullish on the shares of WMB.

On May 2, Williams reported 1Q22 adjusted net income from continuing operations of $499 million or $0.41 per share, up from $429 million or $0.35 per share in the prior-year quarter. EPS beat our estimate of $0.32 and the consensus forecast of $0.36.

We are raising our 2022 EPS estimate to $1.45 from $1.36 based on the 1Q22 results, which surpassed our quarterly estimate and our expectations for strong natural gas prices in 2022. The current consensus is $1.46.

We are also increasing our 2023 EPS estimate to $1.57 from $1.48 to reflect our forecast calling for continued growth in natural gas pricing during the year, which should support higher top-line and bottom-line growth in 2023. The consensus forecast is $1.56.

In February, Williams announced a 3.7% increase in its quarterly dividend to $0.425 per share, or $1.70 annually, for a yield of about 4.9%. Our dividend estimates are $1.70 for 2022 and $1.74 for 2023. We are reaffirming our "buy" rating with a revised target price of $40.

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