Before 3Q15 Results, 53% of Analysts Rate ONEOK a ‘Hold’

Outlook for ONEOK Partners' 3Q15 Earnings Release on November 3

(Continued from Prior Part)

Analyst recommendations for OKS

Of the analysts surveyed by Bloomberg, 31.6% rated ONEOK Partners (OKS) a “buy,” 52.6% rated it a “hold,” and 15.8% rated it a “sell.” The consensus target price for ONEOK Partners is $36.90. Its units currently trade near $32. If the stock does attain this target price within a year, it would mean a 15% price return for investors.

ONEOK Partners’ low distribution coverage, high leverage, and low expected distribution growth may have contributed to a low percentage of “buy” recommendations. The partnership’s distributions have been flat for the last three consecutive quarters. Analysts are probably uncertain about its future prospects and would like to see its 3Q15 results before making a decision on its units.

The above table shows recommendations and target prices for ONEOK Partners from some of the brokers that were surveyed. OKS forms ~1% of the Guggenheim Defensive Equity ETF (DEF) and ~1% of the Guggenheim Multi-Asset Income ETF (CVY).

As for OKS’s peers, half of the analysts rated Enbridge Energy Partners (EEP) a “hold,” 55% rated Targa Resources (NGLS) a “buy,” and 83% rated Kinder Morgan (KMI) a “buy.”

Outlook for ONEOK Partners

ONEOK Partners faces a number of challenges in the current commodity price environment. These include its exposure to commodity prices, its high leverage, and low distribution coverage ratio. The MLP sold common units to ONEOK Inc. (OKE) in August to reduce leverage.

ONEOK Partners is increasingly focused on fee-based revenues to minimize commodity price risks. With the expected increase in OKS’s EBITDA (earnings before interest, taxes, depreciation, and amortization) for 3Q15 and with distributions for the quarter remaining flat, the company’s coverage ratio should improve in the quarter.

ONEOK Partners is working on numerous growth and expansion projects that are expected to become operational over the next two years. These should contribute to its distributable cash flows.

It’s important to watch developments in the above metrics over time to make decisions about investments in OKS.

Browse this series on Market Realist:

• Part 1 - ONEOK Partners: 2015 Returns Exceed MLP Average

• Part 2 - Will ONEOK Partners Miss 3Q15 Consensus Revenue Estimates Again?

• Part 3 - Will ONEOK Partners Match Higher 3Q15 Earnings Estimates?