First Look at ONEOK Partners (OKS).

Bonds outstanding: $3.8 billion.  Big bonds due in 2016.  The preferred shows a dashes here, but they paid $148 million in preferred dividends in 2011 according to the company’s income statement.

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What the company does – ONEOK Partners gathers, processes, and transports natural gas and natural gas liquids. The partnership’s interstate pipelines carry nearly one fifth of the gas exported from Canada to the United States, while its large gathering and processing operations serve Texas, Oklahoma, Kansas, and the High Plains region. ONEOK Partners’ largest segment is its NGL business, which is growing rapidly thanks to multiple recent projects.

Morningstar’s take – ONEOK Partners has positioned itself for growth in the midstream sector by focusing on natural gas liquids. While natural gas transportation still makes up a third of cash flows, we think ONEOK’s sweet spot is on the liquids side of the business. Recently completed and announced projects will shift cash flows more strongly toward NGLs, and we think the partnership can differentiate itself from peers by continuing to address the challenge of getting liquids to market.

DIVIDEND RECORD – Steady dividend payer and moderate dividend grow since mid-2006 when OKS started paying dividends.  The dividend was $0.48 quarterly in 2006.  This quote comes from the company’s 2010 annual report, “Distributions to unitholders have increased 43 percent since 2006; they are expected to increase one penny per quarter in 2011 and 5 to 10 percent annually in 2012 to 2013, pending board approval.”  I looks like they’ve kept their word from the dividend record chart below.

Dividend: $0.61 quarterly

Dividend yield: 4.17%

Dividend payout ratio: 67% using Google Finance recent EPS of $3.35 –OR- 107% using average adjusted earning power of $2.28.

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EARNING POWER – $2.28 @ 203.82 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

12/2007

$2.10

$408 M

166 M

$2.00

12/2008

$3.00

$537 M

179 M

$2.63

12/2009

$3.60

$338 M

94 M

$1.66

12/2010

$1.75

$355 M

203 M

$1.74

12/2011

$3.35

$682 M

204.82 M

$3.35

Six year average adjusted earnings per share is $2.28

Consider contrarian buying below $18.24 (8 times average adjusted EPS)

Consider value buying below $27.36 (12 times average adjusted EPS)

Consider speculative selling above $45.60 (20 times average adjusted EPS)

ONEOK Partners (OKS) is currently trading at 25.6 times average adjusted EPS.  This is stock is speculatively priced.

BALANCE SHEET – The chart looks fine, but the stock is way overpriced compared to book value.  Also, the company has little current assets to pay current liabilities.  Huge capital expenditures leaving little free cash flow need to be examined before investing.

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Book value per share: $16.88

Price to book value ratio: 3.47 (under 1.0 is good)

Current ratio: 0.69 (over 2.0 is good)

Quick ratio: 0.0185 (over 1.0 is good)

Debt to equity ratio: 2.64 (lower is better)

Percentage of total assets in plant, property, and equipment: 63.76%

CONCLUSION – As usual, the best time to buy OKS in recent years was in March 2009.  It was a value investment back then.  ONEOK Partners is a steady dividend payer and grower, but I’m concerned that the capital expenditures are going to threaten the dividend growth in the future.  The company is speculatively priced at this time.  Wise investors should have scaled out of it when it reached $45.60 back in November 2011.  The balance sheet is weak when you look at the price to book value ratio and the current ratio and quick ratios.   The company is going to have to issue more debt or stock to finance its current operations.  You can safely ignore this stock until it drops back to the $19.00 – $20.00 range.

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DISCLOSURE – I don’t own ONEOK Partners (OKS).

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Published in: on February 28, 2012 at 6:10 pm  Leave a Comment  

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