Bernstein Speculates On Williams Companies' Standalone Value

Bernstein’s Jean Ann Salisbury believes that if the merger with Energy Transfer Equity LP ETE is successfully completed, the share price of Williams Companies Inc WMB would rise.

Salisbury maintained an Outperform rating on Williams Companies, with a price target of $25.

Standalone Stock Potential

Naming Williams Companies as one of Bernstein’s Top Picks, the analyst mentioned that the stock valuation “has been suppressed by uncertainty around the Transco turnaround, Chesapeake bankruptcy, and a dividend cut. However, when we run scenario analysis, we see standalone upside in almost all cases.”

Salisbury believes that the stock could have almost 30 percent upside potential, standalone.

However, the stock is down 62 percent year to date, and one of the worst performers in Bernstein’s coverage.

Reasons For Underperformance

Salisbury explained that there was a “combination of concerns” that led to the year to date underperformance.

Firstly, there has been market uncertainty regarding new projects, specifically a turnaround for Transco. Salisbury expects a 20 percent or $800 million increase in EBITDA from Atlantic Sunrise and other Transco projects during 2015-2018.

“The biggest negative aspect for Williams is the specter of E&P bankruptcy, most notably from Chesapeake Energy Corporation CHK,” Salisbury mentioned.

Chesapeake Energy accounts for 18 percent of Williams Companies’ EBITDA, and the analyst expects an impact of $400 million from a potential bankruptcy.

Salisbury also pointed out concerns surrounding the uncertainty regarding base asset decline and an impending dividend cut.