Integrated Midstream Assets Will Leverage Secular US Energy Demand

Key Takeaways

• Accelerated infrastructure buildout, successful asset integration, and market positioning are driving operational efficiencies, segment margin expansion, and higher-than-expected growth prospects.
  
• Increasing free cash flow and strategic advantages enable stronger deleveraging, dividend growth, and shareholder returns above consensus estimates.
  
• Exposure to declining fossil fuel demand, regional concentration, acquisition risks, contract renewals, and growing ESG pressures threatens long-term revenue, profitability, and financial flexibility.

Catalysts

Operates as a midstream service provider of gathering, processing, fractionation, transportation, storage, and marine export services in the United States.

• Analyst consensus expects growth from organic projects and synergy capture, but the scale and pace of recent volume ramp-ups, record-setting throughput, and the opportunity to blend and move higher-margin products via new connections suggest EBITDA and revenue growth could materially overshoot current forecasts as infrastructure comes online ahead of schedule and at high utilization.
  
• While analysts broadly acknowledge synergies from recent acquisitions, the full integration of Magellan, EnLink, and Medallion assets has unlocked a far deeper layer of one-off and recurring operational efficiencies and product optimization than market models capture, likely resulting in segment margin expansion well above consensus estimates.
  
• ONEOK's direct exposure to surging U.S. LNG export demand and growing petrochemical sector consumption, especially through Gulf Coast connectivity and new export terminals, positions the company for multi-year step changes in pipeline and export volumes, supporting durable, above-trend revenue and earnings growth into 2027 and beyond.
  
• The build-out of large-scale, integrated midstream infrastructure in cost-advantaged U.S. shale basins, alongside dedicated acreage and increased control over Delaware Basin operations, gives ONEOK a structural cost and market access advantage that should meaningfully increase fee-based revenues, protect margins, and accelerate free cash flow growth.
  
• Enhanced free cash flow, underpinned by tax reform benefits and declining CapEx after 2026, gives ONEOK substantial dry powder for accelerated deleveraging, dividend growth, and potential buybacks, providing multiple avenues for outsized EPS growth and shareholder return above current market expectations.

ONEOK Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on ONEOK compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming ONEOK's revenue will grow by 12.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 11.1% today to 11.8% in 3 years time.
• The bullish analysts expect earnings to reach $4.8 billion (and earnings per share of $7.79) by about August 2028, up from $3.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 26.4x on those 2028 earnings, up from 15.4x today. This future PE is greater than the current PE for the US Oil and Gas industry at 13.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.83%, as per the Simply Wall St company report.

ONEOK Future Earnings Per Share Growth

Risks

• Acceleration of the global energy transition towards renewables and electrification poses a long-term risk of declining natural gas and NGL demand, leading to potential volume declines and underutilized assets, which would pressure both revenues and asset values.
  
• ONEOK's concentration of assets and earnings in the U.S. Midcontinent and Permian Basin increases its vulnerability to local production slowdowns, lack of geographic diversification, and regional competition, resulting in potential revenue volatility and lower earnings growth.
  
• Integration risks and elevated debt levels after recent acquisitions, including Magellan Midstream and EnLink, may constrain financial flexibility and raise interest expenses, which could compress net margins and limit future earnings growth.
  
• ONEOK's long-term growth depends significantly on contract renewals and throughput volumes, but as contracts expire, there is a risk of customers renegotiating lower tariffs or allowing volume declines, directly pressuring future revenues and margins.
  
• Continued regulatory and investor focus on ESG factors and decarbonization, along with rising capital costs for fossil fuel infrastructure, may restrict ONEOK's access to financing and increase compliance costs, eroding profitability over the long term.

Valuation

• The assumed bullish price target for ONEOK is $129.84, which represents two standard deviations above the consensus price target of $101.33. This valuation is based on what can be assumed as the expectations of ONEOK's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $147.0, and the most bearish reporting a price target of just $87.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $40.2 billion, earnings will come to $4.8 billion, and it would be trading on a PE ratio of 26.4x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $75.48, the bullish analyst price target of $129.84 is 41.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.