On Friday, Scotiabank adjusted its outlook on ONEOK Inc (NYSE: NYSE:OKE), a midstream service provider in the energy industry, raising the price target on the company's stock to $102.00 from the previous target of $88.00. The firm maintained its rating of Sector Outperform for ONEOK's shares.
The increase in the price target comes after an assessment of ONEOK's recent business combination, which has led to a new entity referred to as Oak™nlink. Scotiabank's analysis projects that the combined company will achieve a pro forma EBITDA of approximately $8.19 billion by the fiscal year 2025, with further detailed projections extending through 2027.
The analyst from Scotiabank highlighted the potential for significant accretion due to the large debt component of the deal and the expected consolidation of equity units. Furthermore, the removal of EnLink's general and administrative expenses and the commercial opportunities in the Permian region with crude and natural gas liquids (NGL) are anticipated to contribute to the $250 million in synergies expected in the early years of the combination.
Scotiabank's positive outlook is also reinforced by ONEOK's history of achieving synergies ahead of schedule with previous mergers, such as with Magellan. Based on these factors and the added scale that ONEOK now possesses, the price target has been set at 11 times the firm's projected 2026 EBITDA.
ONEOK's stock will continue to be observed by investors and analysts alike as the company progresses with its post-merger operations and strives to meet the financial targets outlined by Scotiabank.
In other recent news, ONEOK Inc. has reported strong financial results for the second quarter of 2024, with a significant 28% year-over-year increase in net income, reaching $780 million. The company's earnings per share of $1.33 exceeded consensus estimates, attributed to increased volumes in natural gas liquids and natural gas processing, particularly in the Rocky Mountain region. RBC Capital Markets and CFRA have both adjusted their price targets for ONEOK, raising them to $89.00 and $90.00 respectively, based on the company's robust financial performance and potential for increased capital returns.
The company has reaffirmed its full-year outlook for 2024, and RBC suggests this may be conservative given ONEOK's current volume trends. ONEOK is also actively pursuing growth opportunities, including the El Paso expansion in the refined products segment. Expansion projects in Texas and Oklahoma are on schedule, with the Texas project expected to be completed next month.
InvestingPro Insights
Following Scotiabank's revised price target for ONEOK Inc, current InvestingPro data provides additional context to their assessment. With a market capitalization of $52.65 billion, ONEOK's valuation reflects its significant presence in the energy sector. The company's P/E ratio stands at 19.54, which aligns with typical market valuations, and it has maintained a relatively stable adjusted P/E ratio of 19.65 over the last twelve months as of Q2 2024.
InvestingPro Tips suggest that investors should note the company's negative PEG ratio of -1.4, which could indicate that the market has already priced in future growth expectations, potentially limiting significant upside from current levels. However, the robust revenue growth of 31.14% in Q2 2024 on a quarterly basis signals strong operational performance.
Additionally, ONEOK's dividend yield stands at an attractive 4.39%, supported by a consistent dividend growth of 3.66% over the last twelve months as of Q2 2024. This combination of dividend yield and growth may appeal to income-focused investors.
Investors considering ONEOK as part of their portfolio can find a total of 12 additional InvestingPro Tips, providing deeper insights into the company's financial health and stock performance. For those interested in the company's future earnings, the next earnings date is set for October 29, 2024.
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