ONEOK Inc. OKE announced that it is going to issue 19 million shares and expects gross proceeds from the issue, before deducting offering expenses, to be nearly $1.0355 billion. The company will allow the underwriters of the issue to purchase up to 2.85 million additional common shares to cover over-allotments, if necessary.
The company has plans to utilize the net proceeds from the equity issue to fund capital expenditures — including a portion of its recently announced natural gas liquids growth projects — to pre-fund additional projects, which are in the late stages of development. It also aims to use the proceeds for general corporate purposes, which may include repaying a portion of outstanding indebtedness.
Reasons Behind the Issue
At the end of third-quarter 2017, the diluted outstanding shares of the company were 383.4 million. With the fresh issue of equity, the total diluted outstanding shares will go beyond 400 million.
It is a well-documented fact that utilities are capital intensive companies and are in constant need of funds. At present, debt to capital of ONEOK is 59.46%, which is higher than the industry ratio of 47.77%. So, rising debt burden would further increase interest expenses. In addition, its current ratio is 0.55, much lower than the S&P 500 average of 1.35. Interest rates have increased four times in last five quarters, which will definitely make borrowing costlier than before.
So ONEOK had to depend on the equity holders to get additional funds to carry on its capital projects and lower its debt levels.
Capital Projects
ONEOK, at present, has nearly $2.5-$3.5 billion of capital projects under development, which include Natural gas and NGL pipelines and development of export infrastructure. Most of the capital projects, which are underway, already have some degree of commitments from its customers. The completed projects will be accretive to earnings and further strengthen performance of the company.
Price Movement
Shares of the company have returned 6.8% in the last six months compared with the Zacks Gas Distribution industry’s rally of 1.4%.
ONEOK has already completed projects worth $9 billion between 2006 and 2016 in highly productive regions, which is driving the performance of the company.
Zacks Rank & Key Picks
ONEOK currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Southwest Gas Corporation SWX, DTE Energy Company DTE and FirstEnergy Corporation FE. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Southwest Gas Corporation (SWX) reported an average positive earnings surprise of 18.15% in the last four quarters. Its long-term expected EPS growth rate is 5.90%.
DTE Energy pulled off an average positive earnings surprise of 3.81% in the last four quarters. Its 2018 Zacks Consensus Estimate moved up 0.9% in last 90 days to $5.73.
FirstEnergy delivered an average positive earnings surprise of 4.67% in the last four quarters. Its 2018 Zacks Consensus Estimate moved up 0.4% in last 60 days to $2.51.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment