Decarbonization Pressures Will Undermine Heavy Pipeline Investments

Key Takeaways

• Shifting energy policies and rapid renewable adoption threaten Williams Companies' core natural gas business, risking underutilized assets and margin compression.
  
• Regulatory hurdles, high capital spending, and US market concentration expose the company to elevated financial and operational risks amid energy transition trends.
  
• Stable long-term growth is driven by robust project demand, predictable cash flows, strategic infrastructure expansion, modernization, and disciplined capital allocation supporting future returns.

Catalysts

Operates as an energy infrastructure company primarily in the United States.

• The accelerating shift toward decarbonization policies, carbon pricing, and expanding electrification could bring about a sharp decline in long-term natural gas demand, putting significant pressure on Williams Companies' core transportation revenue, despite their backlog of contracted projects and current expansions.
  
• A faster-than-expected transition to renewable energy technologies and grid-scale energy storage poses a risk that natural gas-fired generation will be replaced, underutilizing new and existing pipeline infrastructure, which may result in stranded assets and reduce long-term return on invested capital, ultimately weighing on the company's EBITDA and margin profile.
  
• Skyrocketing investments in capital-intensive pipeline expansions, deepwater projects, and storage assets—highlighted by billions allocated to projects like Socrates and Power Express—face growing legal, regulatory, and permitting challenges that can delay in-service dates, escalate costs, and hinder revenue recognition, especially as public and political opposition to fossil infrastructure mounts.
  
• Geographic concentration of Williams’ business in the US, particularly in regions where natural gas demand may soon plateau or even decline due to adoption of electrified heating, vehicles, and industrial processes, limits future revenue growth options and increases exposure to adverse regional trends, making it hard to maintain double-digit earnings growth.
  
• Structural declines in North American natural gas exploration and production activity driven by ESG activism, capital withdrawals, and alternative clean energy infrastructure competition (hydrogen, renewable natural gas, electric transmission) will likely reduce volumetric throughput, compress margins, and dampen long-term cash flow visibility for Williams Companies.

Williams Companies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Williams Companies compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Williams Companies's revenue will decrease by 1.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 20.6% today to 31.1% in 3 years time.
• The bearish analysts expect earnings to reach $3.3 billion (and earnings per share of $2.62) by about July 2028, up from $2.3 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 bearish analyst cohort, the company would need to trade at a PE ratio of 22.5x on those 2028 earnings, down from 31.7x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.8x.
• Analysts expect the number of shares outstanding to grow by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.84%, as per the Simply Wall St company report.

Williams Companies Future Earnings Per Share Growth

Risks

• The growing demand for natural gas for power generation, particularly from data centers, industrial reshoring, and LNG exports, is resulting in a significant backlog of fully contracted, high-return projects for Williams; this trend supports stable, long-term revenue and earnings growth.
  
• Williams has demonstrated a strong track record of operational execution and predictable, fee-based cash flows, highlighted by 37 consecutive quarters of meeting or exceeding consensus expectations and eight upward guidance revisions, which suggests durability in EBITDA and net margin performance.
  
• The company’s ability to leverage its expansive pipeline footprint, especially along the Transco system and in the Gulf and Northeast, allows for scalable brownfield expansions that reduce permitting risks, enabling sustainable capacity increases and supporting long-term revenue growth.
  
• Strategic investments in modernization and expansion, including new project models (such as behind-the-meter power infrastructure for data centers) and selective acquisitions (like the interest in Cogentrix), are driving higher returns and creating new business verticals, further enhancing margin stability and future earnings potential.
  
• Williams’ strong balance sheet, improved credit ratings, disciplined capital allocation, and commitment to a well-covered and growing dividend provide financial flexibility to capitalize on sector tailwinds, underpinning steady free cash flow and supporting continued shareholder returns.

Valuation

• The assumed bearish price target for Williams Companies is $49.47, which represents two standard deviations below the consensus price target of $63.09. This valuation is based on what can be assumed as the expectations of Williams Companies's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $74.0, and the most bearish reporting a price target of just $43.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $10.6 billion, earnings will come to $3.3 billion, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 6.8%.
• Given the current share price of $59.24, the bearish analyst price target of $49.47 is 19.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.