Sell Oneok Partners (OKS)
Sell Oneok Partners (OKS)
Master limited partnership units of Oneok Partners (OKS) have run through my target price of $54 a share by March 2010 and just kept on going. I still like this natural gas pipeline play for its yield of 7.5% (as of November 9, 2009) so I’m keeping it in my Dividend Income Portfolio. But I just can’t see more than a couple of bucks more in price appreciation in the next year and that limits the total return on these units. So I’m selling them out of my 12-18 month Jubak’s Picks portfolio with this post.
On November 3, the master limited partnership reported third quarter earnings of $1.00 a unit, beating Wall Street estimates by 13 cents a unit. Revenues, however, fell 30% from the third quarter of 2008 to $1.56 billion. That was significantly short of the $1.86 billion expected by Wall Street.
Oneok Partners did raise guidance earnings for all of 2009 to a range of $3.40 to $3.60 per unit, above the analyst consensus. The previous guidance from the company was for $3.25 to $3.65 per unit.
The worry in the near term is that depressed natural gas demand as the United States only slowly comes out of recession will leave some of the company’s pipelines operating at less than full capacity. Oneok has added significant new capacity out of the Barnett shale region of Texas, for example, but reduced drilling and production in that field could mean that it will take a year or more before the new pipelines are running at full load. The Arbuckle pipeline, which went into service in July, operated at about half capacity in the third quarter, for instance.
With interest rates low the partnership should, however, have no problem funding its plans to invest $300 million to $500 million annually in new capital projects through 2015.
I’m selling these units with a 40% capital gain and interest income of about 8% since I added them to the portfolio on October 7, 2008.
(Full disclosure: I will sell my personal position in Oneok Partners three days after this is posted.)
Related Posts
No related posts.
5 comments
Post a comment
Comments that include profanity, or personal attacks, or antisocial behavior such as "spamming" or "trolling," or other inappropriate comments or material will be removed from the site. We will take steps to block users who violate any of our terms of use. You are fully responsible for the content that you post.
I loved this OKS play, and scaled in several times over the past year. It was a nice stock, FIND ME ANOTHER!
sold! What about ETP?
Thanks,
Jim, do the pipeline MLPs see any upside from rising natural gas rates or are their contracts purely a function of volume of gas conveyed?
Also, how long are these contracts typically done for? I am trying to understand if MLPs will benefit from inflation and potentially rising natural gas prices.
thanks in advance!
OPA, in 3rd quater press release, they have guidance and only discuss the negative results of falling prices: http://finance.yahoo.com/news/ONEOK-Partners-Reports-prnews-241720516.html?x=0&.v=1
(You will have to read the whole thing, its buried in the middle)
Jim,
This and TC are two excellent, excellent stocks I never would’ve found without you. If I ever meet you (which is unlikely), I owe you a beer!