Earlier this month, natural gas producer and pipeline firm The Williams Companies Inc. (WMB) announced its financial results for the first-quarter 2011.
Now that the analysts have had some time to ponder over the quarterly performance of Williams, they are weighing their estimate revisions. Below we cover the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the outlook.
Earnings Review
On May 4, 2011, Williams reported slightly better first quarter 2011 results, reflecting positive production figures partially offset by high operating costs.
Earnings per share, excluding special items, came in at 36 cents, beating the Zacks Consensus Estimate by a penny and at par with the year-ago quarter’s results. The company generated revenues of $2.58 billion, surpassing our expectation of $2.56 billion. However, compared with the prior-year quarter, revenues decreased a marginal 0.6% from $2.59 billion.
(Read our full coverage on this earnings report: Williams Ahead, Raises Guidance)
Agreement of Estimate Revisions
Analysts exhibit a strong bullish sentiment regarding Williams’ 2011 and 2012 outlooks. In particular, we see a notable number of earnings per share estimate revisions over the past 30 days, indicating that the revisions were in response to the company’s March quarter earnings release.
Out of 11 analysts covering the stock, 8 have revised their estimates for 2011 upward, while none have gone in the opposite direction. The trend is similar for 2012 as well. Out of 11 analysts, 2 raised their estimates as against 1 negative revision.
Estimates are up for the June quarter of 2011 as well. For the current quarter, 4 of the 9 analysts have increased their estimates over the last 30 days, compared to one negative adjustment.
This uptrend in estimate revisions reflects strong near-term financial results for Williams with the expectation that cash flows will be driven by fundamental improvement in the business. Given the improved overall economic environment, higher NGL/oil prices and improved olefin margins, we see a consistent stream of earnings from the company’s operations.
Magnitude of Estimate Revisions
As a result of the analysts revising estimates northward over the past 30 days, the Zacks Consensus Estimate for fiscal 2011 has gone up by 9 cents (from $1.38 to $1.47), while for 2012, the estimate has improved by 2 cents (from $1.68 to $1.70). Meanwhile, for the second quarter of 2011, estimate has increased by 3 cents (from 32 cents to 35 cents) in the last 30 days.
Our Recommendation
We have recently upgraded Williams’ shares to Outperform from Neutral.
Williams Companies is an integrated energy firm that primarily finds, produces, gathers, processes and transports natural gas primarily in the Rocky Mountains, Gulf Coast, Pacific Northwest, Eastern Seaboard and the Marcellus Shale in Pennsylvania.
The company divides its business into four segments: Exploration & Production, Williams Partners – that includes the company’s 84%-owned master limited partnership Williams Partners L.P. (WPZ) – Midstream Canada & Olefins, and Other.
We like the company’s strong business mix, attractive growth opportunities in its low-risk upstream model and relatively stable fee-based midstream services. We also think that the just-concluded consolidation program will allow Williams to simplify its structure, pay down debt, drive growth and unlock value for shareholders. Furthermore, the company’s proposal to split into two separate entities is expected to be long-term accretive.
We therefore believe that Williams offers meaningful upside potential for investors. Our long-term Outperform recommendation is supported by a Zacks #1 Rank (short-term Strong Buy rating).
WILLIAMS COS (WMB): Free Stock Analysis Report
Be the first to comment