Market Overview

Jefferies Downgrades ONEOK On Valuation, But Says It's A Favorite US Midstream Pick

Share:
Jefferies Downgrades ONEOK On Valuation, But Says It's A Favorite US Midstream Pick

Given the fundamental improvements in energy stocks in the second quarter, Jefferies has made ratings changes to master limited partnerships in its coverage universe based on updated models and recent stock price moves.

The Analyst

Analyst Christopher Sighinolfi downgraded shares of both ONEOK, Inc. (NYSE: OKE) and Magellan Midstream Partners, L.P. (NYSE: MMP) from Buy to Hold. The price target for ONEOK was increased from $67 to $77 and Magellan's was hiked from $68 to $70.

The analyst upgraded shares of MPLX LP (NYSE: MPLX) from Hold to Buy and increased the price target from $36 to $38. Sunoco LP (NYSE: SUN) was upgraded from Underperform to Hold with a $22 price target.

Energy Fundamentals Improving

Daily field production from U.S. energy companies as well as domestic demand set new records, while WTI crude oil and Mt. Belviev NGLs prices rose over 8 percent quarter-over-quarter, Sighinolfi said in a Wednesday note. (See the analyst's track record here.) 

Midstream companies announced several expansion projects and simplification transactions, the analyst said. Refining activity was robust as U.S. refiners strived to take advantage of wide pricing spreads and focused on the International Maritime Organization's 2020 rule, he said. 

M&A and trade tensions have increased the attractiveness of domestic, investment grade-rated regulated utilities, Sighinolfi said. 

With ONEOK stock outperforming the S&P 500 Index by about 24 percent since March, Jefferies said it has replaced it with Williams Companies Inc (NYSE: WMB) as its franchise pick. 

ONEOK Less Attractive On Valuation

The 27-percent rally in the shares of ONEOK over the past four months has rendered a multiple of 15.3 times its estimated EV/EBITDA for 2020, according to Jefferies. 

The total return for the stock relative to the new price target falls short of the threshold for a Buy recommendation, Sighinolfi said. 

The analyst said he favors the company's simple structure and is looking for a meaningful Q2 beat. Jefferies named ONEOK as one of its favorite PM picks in the U.S. midstream sector. 

The Price Action

Shares of ONEOK have risen about 35 percent year-to-date.

Related Links:

Barclays Downgrades Targa, DCP Midstream On Decelerating Permian Volumes; Enable Midstream Upgraded

Wells Fargo Downgrades Sempra Energy After Monday's Spike On Activist Involvement

Latest Ratings for OKE

DateFirmActionFromTo
Sep 2020ScotiaBankDowngradesSector OutperformSector Perform
Aug 2020Seaport GlobalUpgradesNeutralBuy
Aug 2020Morgan StanleyMaintainsUnderweight

View More Analyst Ratings for OKE
View the Latest Analyst Ratings

 

Related Articles (OKE)

View Comments and Join the Discussion!

Posted-In: Christopher Sighinolfi JefferiesAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

Latest Ratings

StockFirmActionPT
JBLRBC CapitalMaintains38.0
COSTRBC CapitalMaintains412.0
COSTMKM PartnersMaintains325.0
NOWStifelMaintains500.0
MTNTruist SecuritiesMaintains243.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com