COMPANY SPOTLIGHT: Williams Cos. (NYSE:WMB) It's A Gas - The Good: Has $1.5 billion in cash.
- The Bad: Stock price reflects investor enthusiasm.
- The Beautiful: Re-focusing on core business.
December 20, 2007 - Williams Companies (WMB-NYSE) is spending its energy refocusing on energy. It is engaged in gas gathering, storage, processing, and transportation, as well as oil and gas exploration and production. The company operates 14,400 miles of interstate natural gas pipeline, including the Transco system, which runs from Texas to New York. Williams has proved reserves of 3.7 trillion cu. ft. of natural gas equivalent. Williams' Gas Pipeline unit operates three pipeline companies (Transco, Northwest, and Gulfstream).
This stock was on sale for 80 cents a share in 2002. Things have improved markedly since then, for the stock and the company. Of course, it's the earnings that make all the difference. In 2002, they were a negative 16 cents a share after reporting a record $2.35 in 2001. Since 2002 earnings have been positive, going from 2 cents a share to 49 cents to 72 cents to 86 cents. This year analysts expect $1.35 and $1.60 next. The stock price has reflected this turn of events. While it's not trading near the all time high of $53.80 currently, the stock is well above 80 cents a share.Analysts are predicting good earnings growth for Williams, looking for an increase of 24% a year, on average, in the next 5 years while sales should only improve by 3.5% a year, on average in the same time period. There's a reason for the better efficiency. Williams unloaded its Power operation, sold it to Bear Stearns Companies for $496 million. There was an imputed debt of $2.4 billion associated with the operation and related interest demand obligations of $400 million annually. Without this division, earnings should be more consistent as there was a mark to market required in the energy-trading activities. Now more resources can be devoted to its core business of natural gas where the company has a definite competitive advantage. Some numbers: $1.5 billion in cash with current assets about 1.2 times current liabilities. That cash could be used for stock buybacks, increasing the dividend or more capital assets. Net profit margin was 4.4% last year. Look for 7.5% this year and 8% next year. Return on equity was 8.6% last year with expectations of 12% this year and 13% next. The P/E for the trailing twelve months is 51. If you take next fiscal year's estimated earnings, that P/E becomes a more palatable 26, still a bit pricey, however. Ther'e's a quarterly dividend of 10 cents a share. This is a natural gas play, pure and simple. The winter is starting out very cold in the midwest and northeast. Gas will make it warmer. If your heating bills are a monthly shock, this stock may be a way to recoup some of those payments. - Company Web site: http://www.williams.com/ - Ted Allrich |
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