US LNG Expansion Will Strengthen Reliable Midstream Networks

Key Takeaways

• Strong US natural gas demand growth and constrained pipeline competition position Williams’ extensive network for sustained revenue and margin expansion.
  
• Strategic investments in renewables and data center power projects are driving long-term earnings growth and diversified, higher-margin revenue streams.
  
• Emerging energy transition risks and increased ESG scrutiny threaten Williams Companies’ long-term revenues, asset values, financing costs, and earnings growth prospects.

Catalysts

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

• Williams is poised to capitalize on accelerating demand for natural gas as the US power sector transitions from coal and faces surging loads from data centers, evidenced by new high-return projects like Socrates and Power Express, which are fully contracted and provide multi-year revenue visibility, supporting sustained earnings and cash flow growth.
  
• The ongoing expansion of US LNG export capacity, particularly along the Gulf Coast, is generating a strong demand pull on Williams’ key pipeline corridors such as Transco and the Haynesville region, leading to incremental volumes and supporting both near-term and long-term revenue growth as multiple large-scale pipeline expansions and storage projects come online.
  
• The increasing need for reliable, grid-resilient infrastructure—driven by extreme weather, power market volatility, and industrial reshoring—has heightened the value of Williams’ nationwide transmission and storage platform, enabling stable contracted fee-based revenues and underpinning robust adjusted EBITDA and dividend growth.
  
• Rising barriers for new pipeline construction and permitting have increased the competitive advantage and intrinsic value of Williams’ existing asset footprint, meaning its extensive network in high-growth basins is likely to command premium margins and pricing power over time, further boosting profitability.
  
• Williams’ strategic diversification into downstream energy, particularly through investments in renewable natural gas and data center-focused gas-fired power projects, is unlocking new sources of higher-margin revenues and supporting upward revisions to earnings outlooks as these projects achieve scale and recurring cash flows through the end of the decade.

Williams Companies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Williams Companies compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Williams Companies's revenue will grow by 14.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 20.6% today to 23.0% in 3 years time.
• The bullish analysts expect earnings to reach $3.8 billion (and earnings per share of $2.99) 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 bullish analyst cohort, the company would need to trade at a PE ratio of 28.8x on those 2028 earnings, down from 31.5x 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 6.85%, as per the Simply Wall St company report.

Williams Companies Future Earnings Per Share Growth

Risks

• Accelerating global energy transition policies and increasing commitments to net-zero emissions may lead to a structural decline in long-term fossil fuel demand, which could reduce the future need for the natural gas transportation and pipeline infrastructure that Williams Companies provides, thereby pressuring long-term revenues and asset utilization rates.
  
• The rapid adoption and improving economics of renewable energy and battery storage solutions could lessen the role of natural gas as a bridge fuel, potentially leading to stranded pipeline assets and diminishing return on invested capital and net margins over the next decade.
  
• Heightened investor and regulatory focus on ESG criteria and decarbonization could raise Williams Companies’ cost of capital and restrict access to financing, while also increasing the risk of shareholder divestment, negatively impacting share valuation and overall earnings.
  
• Williams’ heavy reliance on long-term take-or-pay contracts, especially as the energy transition accelerates, introduces a risk that customers may not renew contracts at favorable rates, resulting in declining revenue and increased cash flow uncertainty in the out-years.
  
• The necessity for ongoing, elevated capital expenditures to construct and maintain pipeline infrastructure, combined with a potentially stagnating or shrinking natural gas market, could strain Williams Companies’ debt load and limit strategic flexibility, thereby compressing net margins and hindering earnings growth over the long term.

Valuation

• The assumed bullish price target for Williams Companies is $74.0, which is the highest price target estimate amongst analysts. 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 bullish 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 bullish analysts, you'd need to believe that by 2028, revenues will be $16.7 billion, earnings will come to $3.8 billion, and it would be trading on a PE ratio of 28.8x, assuming you use a discount rate of 6.9%.
• Given the current share price of $58.89, the bullish analyst price target of $74.0 is 20.4% 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.