A strong performer from today's morning trading session is ONEOK, whose shares rose 1.1% to $69.81 per share. For those of you thinking about investing in the stock, here is a brief value analysis of the stock using the company's basic fundamental ratios.
ONEOK Might Be Underpriced:
ONEOK, Inc. 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 17.53 and an average price to book (P/B) ratio of 1.71. In contrast, ONEOK has a trailing 12 month P/E ratio of 12.8 and a P/B ratio of 2.49.
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 1.08, 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 Company Has a Highly Leveraged Balance Sheet:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $12,593 | $10,164 | $8,542 | $16,540 | $22,387 | $19,199 |
| Revenue Growth | n/a | -19.29% | -15.96% | 93.63% | 35.35% | -14.24% |
| Operating Margins | 15% | 19% | 16% | 16% | 13% | 19% |
| Net Margins | 9% | 13% | 7% | 9% | 8% | 13% |
| Net Income (MM) | $1,155 | $1,279 | $613 | $1,500 | $1,722 | $2,456 |
| Net Interest Expense (MM) | $470 | $492 | $713 | $733 | $676 | $727 |
| Depreciation & Amort. (MM) | $429 | $477 | $579 | $622 | $626 | $666 |
| Earnings Per Share | $2.78 | $3.07 | $1.42 | $3.35 | $3.84 | $5.46 |
| EPS Growth | n/a | 10.43% | -53.75% | 135.92% | 14.63% | 42.19% |
| Diluted Shares (MM) | 414 | 415 | 432 | 447 | 448 | 458 |
| Free Cash Flow (MM) | $45 | -$1,902 | -$296 | $1,849 | $1,704 | $2,645 |
| Capital Expenditures (MM) | $2,141 | $3,848 | $2,195 | $697 | $1,202 | $1,308 |
| Current Ratio | 0.66 | 0.73 | 1.39 | 0.75 | 0.84 | 0.97 |
| Total Debt (MM) | $18,273 | $24,980 | $28,428 | $26,348 | $26,296 | $22,000 |
| Net Debt / EBITDA | 8.07 | 10.44 | 14.38 | 8.14 | 7.59 | 4.94 |
ONEOK has generally positive cash flows, rapidly growing revenues and decreasing reinvestment in the business, and a strong EPS growth trend. However, the firm suffers from not enough current assets to cover current liabilities because its current ratio is 0.97 and a highly leveraged balance sheet. Finally, we note that ONEOK has weak operating margins with a stable trend.
