Credit Suisse Upgrades ONEOK To Outperform After Stock Down 52% In 2015

• Shares of ONEOK, Inc. (NYSE: OKE) have declined 52.92 percent year to date, while those of Oneok Partners LP (NYSE: OKS) have declined 29.52 percent during the same period.
• John Edwards of Credit Suisse has upgraded the rating on ONEOK from Neutral to Outperform, while raising the price target from $34 to $38, and has reiterated a Neutral rating on Oneok Partners, while raising the price target from $36 to $40.
• While expecting 75 percent upside to ONEOK’s stock valuation, Edwards pointed out that improvement in macro fundamentals could lead to further upside for both stocks.

Analyst John Edwards explained the ratings, saying that discussions with management indicated “(i) G&P contract restructuring (ii) reduced sensitivity to commodity prices (iii) zero OKS equity needs until mid-2017.”

Following the guidance announced on December 28 and follow up with management, Edwards has also revised the 2016 estimates 2 percent higher, with the 2016 EBITDA and DCF estimates now at $1,810 million and $1,344 million, respectively, marginally below the guidance.

“We have revised estimates on the NatGas G&P segment higher offset by a lowered NGL segment,” Edwards stated.

Based on inputs for management, Edwards has now assigned zero economic value to NGLS transported through distribution lines.

“We assume margins for fractionation to run ~$0.05/gal blended and about $0.055/gal blended for transportation. For 2016, OKS said it expects 800-870Mbbl/d of gathering volumes and 540-590MBbl/d of fractionation volumes,” Edwards added.