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Improving Fundamentals, Bottom Line Stability Among The Reasons For ONEOK Upgrade

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Analysts at Argus turned bullish on ONEOK, Inc. (NYSE: OKE), a master limited partnership that engages in the gathering, processing, storage and transportation of natural gas in the U.S., despite a 17 percent decline since the start of 2017.

Argus' David Coleman upgraded Oneok's stock from Hold to Buy with a $55 price target amid improving market fundamentals, greater earnings stability, and an attractive 5.2 percent dividend yield which can be sustained through its cash flow.

Throughout 2016, Oneok benefited from positive volume and contract trends but this hasn't continued in 2017, Coleman noted. But the company took the prudent and necessary steps in restructuring many of its contracts from percent-of-proceeds to fee-based which better insulates the company against changing volumes and energy prices.

Fee-based contracts are more favorable for Oneok during periods of low energy prices as Oneok's customers pays the MLP whether it uses the pipelines or not, the analyst added. In addition, 90 percent of the company's earnings are expected to be fee-based throughout 2017 and the natural gas liquids segment is expected to become a key driver of fee-based growth.

Finally, Oneok ended the first quarter with $310.8 million in cash and cash equivalents, up from $137 million in the same quarter a year ago. This helps supports management's pledge to increase its annualized dividend to $2.98 after the acquisition of the remaining stake in ONEOK Partners closes and then another 9 percent to 11 percent annually through 2021.

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Latest Ratings for OKE

DateFirmActionFromTo
Mar 2021Credit SuisseMaintainsNeutral
Feb 2021Seaport GlobalDowngradesBuyNeutral
Jan 2021Morgan StanleyMaintainsUnderweight

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Posted-In: Argus David Coleman energy energy prices MLPAnalyst Color Upgrades Analyst Ratings

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