Jefferies Issues MLP Update With New Franchise Pick

Energy fundamentals in the U.S. improved throughout the second quarter as the industry as a whole set new records for daily field production, domestic demand and exports, Jefferies said in an industrywide report.

The Analyst

Jefferies' Christopher Sighinolfi last week made the following changes:

ONEOK, Inc. OKE was downgraded from Buy to Hold with a price target lifted from $67 to $77.

Williams Companies Inc WMB will replace Oneok as the "JEF Franchise Pick."

Sunoco LP SUN was upgraded from Sell to Hold with an unchanged $22 price target.

Williams Companies A Top Pick 

Oneok's stock has outperformed the S&P 500 index by nearly 25 percent since March, which implies potential future gains are less attractive relative to some peers, Sighinolfi said in the research report. (See the analyst's track record here.)

Jefferies is replacing Oneok with Williams Companies as its "JEF Franchise Pick," as the stock boasts similar characteristics to Oneok, Sighinolfi said:

• A similar midstream company profile.
• An investment-grade balance sheet.
• A 5-percent dividend yield with a 10-percent growth profile.
• No need for equity raises.

Williams Companies' stock is trading at a nearly five time discount on 2019 EBITDA while offering investors a potential for a 30-percent return, the analyst said. 

Sunoco No Longer A Sell

The bearish case for Sunoco's stock has come to an end after units fell more than 10 percent since early April, Sighinolfi said. The downside potential to $22 per share from Tuesday's closing price of $25.38 isn't steep enough to warrant a Sell rating, the analyst said. The Hold rating factors in the potential for a "sizable" distribution cut and equity needs in the future, according to Jefferies.

Related Links:

Goldman Now A Sunoco Bear On Projections Of Negative Consensus Revisions

ONEOK's High-Return Expansion Projects Prompt Jefferies To Add To 'Franchise Picks'