Few points, you probably already know but just in case
You can't compare P/E between the C-Corp's (KMI, WMB, OKE) and the MLP's, since MLP's don't pay taxes. C-Corp's also have a far wider number of investors that can invest in them, which was the rationale for converting to them for many midstreams.. so C-Corps should trade at a significant premium, but OKE is not right now.
My view on why shares are down: It's just not a clean of a story as many other midstreams with all the noise from the acquisitions, and unlike peers KMI and WMB, it's exposed itself to tax loss selling currently (almost no one holding an MLP can sell for a tax loss unless the holding period is short and the loss is large.) Further issues include disappointing ROI's from recent projects, as well as some short term concerns about missing Q3+Q4 EBITDA targets, primarily because of the commodity environment. This all said, I think a lot of this is priced in already, and if we get a dip after Q3 results, my guess is that it will mark the bottom.
RE: taxes - yes, this was probably worth a callout.
I like the combo of self-help (deal integration) + market dynamics with OKE. I don't have as clear a picture on the coming expansion projects relative to peers. Lots of moving pieces with the acquisitions, my guess is they need to deliver on results over 2-3 quarters with a reasonable 2026 guide.
At this price, even with ST commodity swings, OKE should do well over a 3-5yr stretch
"Virtually all FCF is used to fund the dividend (currently $4.12 per share / 6% yield). Like other midstream players, this means consistent debt & equity issuances to fund growth projects and few, if any, buybacks."
This was true about the sector 10 years ago but really isn't true anymore. The majority of the CapEx here is growth CapEx and until this year at least, most is paid for from OCF.
TTM of OKE, OCF=$5.3B, DIV=$2.4B, CapEx=$2.4B(maint. capital $400m of this.)
For ET, OCF=$11.2B, DIV=$4.6B, CapEx=$5.6B(maint. ~$1B)
Also, with OKE, their EPS understates their cash flow as they won't owe cash taxes until 2028 or so..
Great write up Colin!
Few points, you probably already know but just in case
You can't compare P/E between the C-Corp's (KMI, WMB, OKE) and the MLP's, since MLP's don't pay taxes. C-Corp's also have a far wider number of investors that can invest in them, which was the rationale for converting to them for many midstreams.. so C-Corps should trade at a significant premium, but OKE is not right now.
My view on why shares are down: It's just not a clean of a story as many other midstreams with all the noise from the acquisitions, and unlike peers KMI and WMB, it's exposed itself to tax loss selling currently (almost no one holding an MLP can sell for a tax loss unless the holding period is short and the loss is large.) Further issues include disappointing ROI's from recent projects, as well as some short term concerns about missing Q3+Q4 EBITDA targets, primarily because of the commodity environment. This all said, I think a lot of this is priced in already, and if we get a dip after Q3 results, my guess is that it will mark the bottom.
RE: taxes - yes, this was probably worth a callout.
I like the combo of self-help (deal integration) + market dynamics with OKE. I don't have as clear a picture on the coming expansion projects relative to peers. Lots of moving pieces with the acquisitions, my guess is they need to deliver on results over 2-3 quarters with a reasonable 2026 guide.
At this price, even with ST commodity swings, OKE should do well over a 3-5yr stretch
Another follow up comment as I re-read this
"Virtually all FCF is used to fund the dividend (currently $4.12 per share / 6% yield). Like other midstream players, this means consistent debt & equity issuances to fund growth projects and few, if any, buybacks."
This was true about the sector 10 years ago but really isn't true anymore. The majority of the CapEx here is growth CapEx and until this year at least, most is paid for from OCF.
TTM of OKE, OCF=$5.3B, DIV=$2.4B, CapEx=$2.4B(maint. capital $400m of this.)
For ET, OCF=$11.2B, DIV=$4.6B, CapEx=$5.6B(maint. ~$1B)
Also, with OKE, their EPS understates their cash flow as they won't owe cash taxes until 2028 or so..