This Analyst Likes Williams Companies Business Model

Williams Companies Inc WMB, a provider of large-scale infrastructure connecting natural gas and related products to end markets, is a pure play on domestic natural gas production with an attractive business model, according to Stifel.

The Analyst

Stifel's Selman Akyol initiated coverage of Williams Companies with a Buy rating and $35 price target.

The Thesis

Williams Companies is structured to be located nearly every major U.S. shale basin and is responsible for transporting nearly 30 percent of all natural gas consumption in the U.S., Akyol said in a note. The company is also set up so that around 60 percent of cash flows are volume-protected through long-haul transport contracts along with minimum volume and cost of service agreements. More than 95 percent of the company's cash flows come from fee-based sources, which implies the it's more levered to natural gas demand and volumes rather than price.

The company's structure should help it maintain a top tier distribution coverage, including a dividend growth in the mid-teens along with an investment grade balance sheet with a leverage below five times through at least 2020, the analyst said. Beyond the start of next decade, the company stands to benefit from its largest Transco project which will soon be put into service and provide investment opportunities well into the 2020s.

Akyol said the stock is trading at 13 times 2019 EBITDA, which implies it has room to expand given a simplified business structure that should result in cash flow growth over the coming years.

Price Action

Shares of Williams Companies were trading around $31.56 at time of publication.

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