Top Picks 2020: ONEOK (OKE)

01/24/2020 5:00 am EST

Focus: ENERGY

William Selesky

Senior Analyst: Basic Materials, Argus Research Corporation

Argus Research does not advise companies or manage money; as such it offers completely unbiased, independent research. For his favorite investment idea for the coming year, analyst Bill Selesky looks to a midstream energy service provider.

ONEOK (OKE) is one of the largest energy midstream service providers in the U.S., connecting supply basins with key market centers, It owns and operates one of the nation's premier natural gas liquids systems and is a leader in the gathering, processing, storage and transportation of natural gas.

ONEOK's operations include a 38,000-mile integrated network of NGL and natural gas pipelines, processing plants, fractionators and storage facilities in the Mid-Continent, Williston, Permian and Rocky Mountain regions.

The company continues to restructure legacy contracts and is working to generate new business under a fee-based system. As a result, its earnings have become less vulnerable to changes in volume and pricing.

ONEOK also pays a solid dividend, and management has projected annual increases of 9%-11% through 2021. The dividend yields about 5.0% and is more than covered by cash flow.

We continue to expect meaningful revenue and earnings growth from the ONEOK Partners merger. We are raising our 2020 EPS estimate to $3.75 from $3.72 to reflect our expectations for higher commodity prices and additional merger synergies next year. The 2020 consensus estimate is $3.80.

Our long-term rating remains "buy", reflecting OKE's improving market fundamentals, greater earnings stability, and record of steady dividend growth.

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