Upcoming Transmission And Deepwater Projects In 2025 Will Strengthen Future Prospects

Key Takeaways

• Strategic expansion and infrastructure upgrades are driving earnings growth by meeting increased natural gas demand and enhancing capacity.
  
• Upcoming projects and acquisitions in high-demand areas support increased revenue potential and stronger earnings growth.
  
• Regulatory obstacles and market challenges could significantly affect Williams Companies' project timelines, operational costs, and future revenue streams.

Catalysts

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

• Williams Companies is benefiting from the growing demand for natural gas, as evidenced by record peak volume days on the Transco system, signaling increased future revenue opportunities from higher transportation volumes.
  
• The company's strategy of focusing on natural gas infrastructure and executing large-scale expansion projects, including in challenging areas, is driving earnings growth by enhancing capacity and meeting high demand, thus impacting future revenues positively.
  
• The anticipated completion of 8 interstate transmission projects and 4 deepwater projects in 2025 is expected to contribute significantly to earnings growth, as these projects come online and generate additional revenue streams.
  
• Upgraded infrastructure, such as the replacement of old compressor units, not only reduces emissions but also improves operational efficiency, supporting higher net margins in the future.
  
• Strategic bolt-on acquisitions and project developments in high-demand areas, like the Gulf Coast storage expansion and the Haynesville projects, are expected to capitalize on strong natural gas fundamentals, enhancing revenue and earnings growth prospects.

Williams Companies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Williams Companies's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.7% today to 23.1% in 3 years time.
• Analysts expect earnings to reach $3.1 billion (and earnings per share of $2.57) by about March 2028, up from $2.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.5 billion in earnings, and the most bearish expecting $2.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.2x on those 2028 earnings, down from 32.0x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.7x.
• Analysts expect the number of shares outstanding to grow by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.01%, as per the Simply Wall St company report.

Williams Companies Future Earnings Per Share Growth

Risks

• The challenges in executing market expansion projects, such as those involving deepwater environments or areas with significant regulatory hurdles, could delay operations and lead to cost overruns, potentially impacting the company’s net margins.
  
• Uncertainty in the natural gas pricing environment, as evidenced by lower-than-expected prices, poses a risk to revenue and earnings growth, as the company’s financial performance may be sensitive to such fluctuations.
  
• The potential regulatory and permitting obstacles, particularly related to environmental considerations, can cause delays or cancellations of projects, affecting future revenue streams.
  
• Delays or challenges in the ramp-up of customer-driven projects, such as the deepwater expansion, may hinder expected earnings contributions and adversely affect revenue projections.
  
• Dependence on factors like the pace of industrial reshoring and coal-to-gas switching for natural gas demand growth introduces market risk that could affect future revenue and earnings realizations.

Valuation

• The analysts have a consensus price target of $58.831 for Williams Companies based on their expectations of its future earnings growth, profit margins and other risk factors. 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 $41.76.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $13.4 billion, earnings will come to $3.1 billion, and it would be trading on a PE ratio of 29.2x, assuming you use a discount rate of 8.0%.
• Given the current share price of $58.4, the analyst price target of $58.83 is 0.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.