Shares of Williams Companies (WMB) jumped 2.2 % during today's afternoon session, bringing their 52 week performance to 24.0%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's mixed growth indicators and exuberant market sentiment.
The Williams Companies, Inc., together with its subsidiaries, operates as an energy infrastructure company primarily in the United States. The large-cap Energy company is based in Tulsa, United States and has 4,783 full time employees.
WMB Has a Higher P/E Ratio Than the Sector Average
Compared to the Energy sector's average of 9.11, Williams Companies has a trailing twelve month price to earnings (P/E) ratio of 20.3 and an expected P/E ratio of 18.5. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $1.64 or forward earnings per share of $1.8.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Williams Companies's P/E ratio is higher than its sector average of 9.11, we can deduce that the market is overvaluing the company's earnings.
WMB Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Williams Companies's P/B ratio of 3.6 is higher than its sector average of 1.45, such a margin of safety does not exist for the stock.
WMB Is Generating Cash
Williams Companies has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 6.6%, compared to -25.7% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 1704.0% and a coefficient of variability of 71.6%:
| Date Reported | Cash Flow from Operations ($ MM) | Capital expenditures ($ MM) | Free Cash Flow ($ MM) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 3,945 | -1,247 | 2,698 | 21.48 |
| 2020-12-31 | 3,496 | -1,275 | 2,221 | 43.85 |
| 2019-12-31 | 3,693 | -2,149 | 1,544 | 5046.67 |
| 2018-12-31 | 3,293 | -3,263 | 30 | n/a |
Williams Companies's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Williams Companies's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
Williams Companies's Gross Margins
| Date Reported | Revenue ($ MM) | Cost of Revenue ($ MM) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 10,627 | 7,422 | 30.16 | -23.9 |
| 2020-12-31 | 7,719 | 4,660 | 39.63 | 10.05 |
| 2019-12-31 | 8,201 | 5,248 | 36.01 | 19.83 |
| 2018-12-31 | 8,686 | 6,076 | 30.05 | n/a |
Williams Companies's Operating Margins
| Date Reported | Total Revenue ($ MM) | Operating Expenses ($ MM) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 10,627 | 572 | 24.78 | -25.61 |
| 2020-12-31 | 7,719 | 488 | 33.31 | 14.43 |
| 2019-12-31 | 8,201 | 566 | 29.11 | 28.07 |
| 2018-12-31 | 8,686 | 636 | 22.73 | n/a |
Williams Companies's cost of revenue is growing at a rate of 13.9% in contrast to -2.5% for operating expenses. Sales revenues, on the other hand, have experienced a 8.7% growth rate. As a result, the average gross margins growth is 2.0 and the average operating margins growth rate is 5.6, with coefficients of variability of 13.8% and 17.1% respectively.
Williams Companies Benefits From Positive Market Signals
The market sentiment regarding Williams Companies is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $42 to $30. WMB is trading -10.51% away from its target price of $37.2. 1.5% of the company's shares are tied to short positions, and 88.1% of the shares are held by institutional investors.
| Holder | Shares | Date Reported | Percentage | Value |
|---|---|---|---|---|
| Vanguard Group, Inc. (The) | 126,370,141 | 2022-09-29 | 10.37% | $4,207,493,613.00 |
| Blackrock Inc. | 122,080,232 | 2022-09-29 | 10.02% | $4,064,661,100.00 |
| State Street Corporation | 88,880,791 | 2022-09-29 | 7.30% | $2,959,285,773.00 |
| Dodge & Cox Inc | 49,730,496 | 2022-09-29 | 4.08% | $1,655,776,773.00 |
| Bank of America Corporation | 42,489,248 | 2022-09-29 | 3.49% | $1,414,679,434.00 |
| Deutsche Bank Aktiengesellschaft | 27,019,399 | 2022-09-29 | 2.22% | $899,610,840.00 |
| Geode Capital Management, LLC | 26,969,715 | 2022-09-29 | 2.21% | $897,956,611.00 |
| ClearBridge Investments, LLC | 21,112,525 | 2022-09-29 | 1.73% | $702,941,481.00 |
| Morgan Stanley | 19,614,414 | 2022-09-29 | 1.61% | $653,061,878.00 |
| Royal Bank of Canada | 18,486,773 | 2022-09-29 | 1.52% | $615,517,073.00 |
