Goldman Says Williams Cos. Dividend Cut Is Priced In, Reinstates At Buy

Williams Companies Inc WMB shares offer a “compelling opportunity,” in view of the company’s robust fundamentals and relatively inexpensive valuation, Goldman Sachs’ Theodore Durbin said in a report. He reinstated coverage of the company with a Buy rating and a price target of $25. The price target implies a total return potential of 27 percent versus peers’ average upside of 9 percent.

Positives

Analyst Theodore Durbin mentioned the positives for Williams Companies as:

• Strong fundamental positioning in natural gas infrastructure
• Visible growth from well-contracted projects: Williams Companies’ subsidiary Williams Partners LP WPZ is expected to generate 7 percent consolidated EBITDA CAGR from 2015-2020, resulting in solid cash flow at the company level
• Relatively inexpensive valuation versus midstream C-Corp peers

Dividend Cut May Present A Buying Opportunity

Following the recent management commentary, Williams Companies is likely to cut its dividend by 50 percent in 2Q16, Durbin stated. He further commented that investors should consider any weakness in shares following the dividend cut as a buying opportunity.

Williams Companies’ core business and outlook for cash flow generation continue to be healthy, and the dividend cut could likely boost the company’s balance sheet and financial flexibility, the analyst noted.

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