For Immediate Release
Chicago, IL – July 12, 2024 – Today, Zacks Equity Research discusses Enbridge Inc. ENB, The Williams Companies Inc. WMB, Kinder Morgan, Inc. KMI and MPLX LP MPLX.
Industry: Oil Pipeline
Link: https://www.zacks.com/commentary/2300030/4-oil-pipeline-stocks-to-gain-from-the-promising-industry
The midstream business model ensures that the operations of oil and gas transportation pipelines and storage facilities remain largely insulated from fluctuations in commodity prices. This stability is bolstering the outlook for the Zacks Oil and Gas – Production & Pipelines industry.
Pipeline companies enjoy a strategic advantage over their upstream and downstream counterparts, as they generate consistent and predictable revenue streams through long-term contracts with shippers. Enbridge Inc., The Williams Companies Inc., Kinder Morgan, Inc. and MPLX LP are among the frontrunners in the industry.
About the Industry
The Zacks Oil and Gas – Production & Pipelines industry comprises companies that own and operate midstream energy infrastructure assets. The properties consist of extensive pipeline networks that transport crude oil, liquids and natural gas. The midstream energy players are also involved in the processing and storing of natural gas.
The companies have interests in natural gas distribution utilities, serving millions of retail customers across North America. Some companies are ramping up investments in renewable energy and power transmission businesses.
The firms invest in wind farms, solar energy operations, geothermal projects and hydroelectric facilities. Thus, with a diversified portfolio of renewable energy projects, the companies have room to generate extra cash flows in addition to stable fee-based revenues from the transportation assets.
What’s Shaping the Future of Oil & Gas – Production and Pipelines Industry?
Pipeline Demand to Improve: Oil price is trading at more than $80 per barrel. Crude prices, which are highly favorable, may help explorers and producers ramp up upstream activities, leading to higher production. This, in turn, is improving the demand for crude transportation pipelines of the midstream players.
Stable Fee-Based Revenues: Most pipeline and storage assets are being booked by shippers for the long term, making midstream businesses less vulnerable to volatility in commodity prices. Backed by long-term contracts, the companies belonging to the industry also have a minimal oil and gas volume risk. Owing to these factors, pipeline players will continue to generate stable fee-based revenues.
Impressive Project Backlog: Many pipeline companies in the industry have a backlog of growth projects worth billions of dollars. The projects will come online in a few years, securing additional cashflows for the pipeline players.
Attractive Dividend Yield: Oil and gas pipeline stocks are paying attractive dividend yields. Compared to the overall energy sector, companies belonging to the industry have been rewarding shareholders with significantly higher dividend yields over the past several years, providing reassurance that the midstream business is relatively more stable than upstream and downstream operations.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Oil and Gas – Production & Pipelines is a nine-stock group within the broader Zacks Oil – Energy sector. The industry currently carries a Zacks Industry Rank #76, which places it in the top 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates rosy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries results from a positive earnings outlook for the constituent stocks in aggregate. Before we present a few stocks that you may want to consider, let’s look at the industry’s recent stock market performance and its valuation picture.
Industry Lags S&P 500, Beats Sector
The Zacks Oil and Gas – Production & Pipelines industry has outperformed the broader Zacks Oil – Energy sector but underperformed the Zacks S&P 500 composite over the past year.
The industry has soared 19.8% over this period compared with an improvement of 9.8% of the broader sector and 28.1% rise of the S&P 500.
Industry’s Current Valuation
Based on the trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing oil and gas production & pipeline stocks, the industry is currently trading at 12.71X, lower than the S&P 500’s 20.12X. It is, however, above the sector’s trailing 12-month EV/EBITDA of 3.15X.
Over the past five years, the industry has traded as high as 14.81X, as low as 8.67X and at a median of 12.39X.
4 Oil & Gas Pipeline Stocks Leading the Pack
Kinder Morgan: With its operating interests in oil and gas pipeline networks spread across 82,000 miles, Kinder Morgan is a leading energy infrastructure company in North America. It derives most of its earnings from take-or-pay contracts, generating stable fee-based revenues.
Kinder Morgan, a Zacks Rank #3 (Hold) company, is poised to grow further on the back of its business model, which is relatively resilient to volume and commodity price risks.
The Williams Companies Inc: The Williams Companies is well-poised to capitalize on the mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.
With its pipeline networks spread across more than 33,000 miles, The Williams Companies, currently carrying a Zacks Rank #2 (Buy), connects premium basins in the United States to the key market. WMB’s assets can meet 30% of the nation’s natural gas consumption, utilized for heating purposes and clean-energy generation.
MPLX: MPLX generates stable cashflows and has lower exposure to commodity price volatility since it is the operator of midstream energy infrastructure and logistics assets. It also generates cashflows from a relatively stable fuel distribution business.
Over the past 60 days, MPLX has witnessed upward earnings estimate revisions for 2024. The partnership, with Zacks Rank of 2, has attractive organic growth capital projects and is pursuing low-carbon opportunities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Enbridge: Enbridge is among the leading midstream energy players in North America. Its energy infrastructure includes one of the world’s longest crude oil pipeline networks. With a significant portion of its assets being contracted by shippers for the long term, its business model is less exposed to volatility in oil and gas prices. Backed by long-term contracts, Enbridge’s business model has considerably lower volume risk exposure. ENB carries a Zacks Rank #3.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit for information about the performance numbers displayed in this press release.
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