Today we're going to take a closer look at large-cap Utilities company ONEOK, whose shares are currently trading at $66.31. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
A Very Low P/E Ratio but Trades Above Its Graham Number:
ONEOK, Inc., together with its subsidiaries, engages in gathering, processing, fractionation, storage, transportation, and marketing of natural gas and natural gas liquids (NGL) in the United States. The company belongs to the Utilities sector, which has an average price to earnings (P/E) ratio of 22.89 and an average price to book (P/B) ratio of 1.03. In contrast, ONEOK has a trailing 12 month P/E ratio of 12.2 and a P/B ratio of 2.37.
P/E rations can be placed into context by dividing them by the firm's expected 5-year EPS growth rate, which gives us its Price to Earnings Growth (PEG) ratio. ONEOK's PEG ratio is 1.05, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.
The Business Has Weak Operating Margins:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $12,593 | $10,164 | $8,542 | $16,540 | $22,387 | $19,199 |
| Operating Margins | 15.0% | 19.0% | 16.0% | 16.0% | 13.0% | 19.0% |
| Net Margins | 12.0% | 16.0% | 9.0% | 9.0% | 8.0% | 15.0% |
| Net Income (MM) | $1,515 | $1,651 | $802 | $1,500 | $1,722 | $2,847 |
| Net Interest Expense (MM) | $470 | $492 | $713 | $733 | $676 | $679 |
| Depreciation & Amort. (MM) | $429 | $477 | $579 | $622 | $626 | $646 |
| Earnings Per Share | $2.78 | $3.07 | $1.42 | $3.35 | $3.84 | $5.43 |
| Diluted Shares (MM) | 414 | 415 | 432 | 447 | 448 | 450 |
| Free Cash Flow (MM) | $45 | -$1,902 | -$296 | $1,849 | $1,704 | $2,412 |
| Capital Expenditures (MM) | $2,141 | $3,848 | $2,195 | $697 | $1,202 | $1,237 |
| Net Current Assets (MM) | -$1,354 | -$1,623 | -$851 | -$2,409 | -$929 | -$79 |
| Long Term Debt (MM) | $8,873 | $12,480 | $14,228 | $12,748 | $12,696 | $12,742 |
| Net Debt / EBITDA | 4.0 | 5.31 | 7.3 | 4.34 | 3.9 | 2.91 |
