ONEOK (OKE): Margin Decline Challenges Long-Term Growth Narrative Despite Discounted Valuation

ONEOK (OKE) posted earnings growth averaging 25% per year across the last five years, with high-quality profits that have stood out in the sector. However, in the most recent period, net profit margins slipped to 10.6% from 14% a year ago, and earnings rose by 19.3%, coming in below the five-year trend. Looking ahead, analysts see annual earnings growth slowing to 6.85% and revenue growing 3.2% per year, both trailing broader US market expectations.

See our full analysis for ONEOK.

Next, we will see how the latest numbers compare with the narratives most closely tracked by the Simply Wall St community. Some ideas may be reinforced, while others could be questioned.

See what the community is saying about ONEOK

Free cash flow climbs, debt drops

• ONEOK has increased free cash flow and reduced its leverage, allowing for more disciplined capital allocation and enhanced flexibility to reward shareholders or reinvest in growth.
• Analysts' consensus view points out that improved cash generation supports not only higher shareholder returns but also reinvestment aligned with growing global energy demand.
  • Projections highlight lower projected cash taxes through 2028 and more room to deploy capital efficiently.
  • Stronger free cash flow and declining debt are seen as key to improved net income and future cash flow growth. These factors underpin ONEOK’s outlook even as external headwinds persist.

To understand how these cash flow improvements fit into the bigger picture, read the full consensus narrative and see what could influence ONEOK’s valuation trajectory. 📊 Read the full ONEOK Consensus Narrative.

Export infrastructure and acquisition gains

• Recent expansions, including new midstream assets, pipeline builds, and strategic acquisitions, are expected to provide incremental fee-based volumes and boost margins due to enhanced operating leverage.
• Analysts' consensus view emphasizes that cross-asset integration, sustained export growth, and strategic additions put ONEOK in a strong position to capture higher market share and maintain stable earnings even as cyclical commodity swings create headwinds.
  • Access to the Texas City LPG export terminal and Gulf Coast assets, plus higher international demand for US natural gas and NGLs, underpins long-term revenue growth and pricing power.
  • Consensus also notes that ongoing capital investment in high-growth basins should drive double-digit EBITDA and margin expansion in the near to medium term. This is seen as providing stability while broader market risks linger.

Analyst target suggests 35% upside

• With ONEOK trading at $67.20 and the consensus analyst price target set at $90.74, the implied upside is over 35% if profit and margin forecasts are met.
• In the analysts' consensus view, the gap between the share price and both peer valuations (12.7x PE ratio vs. 12.6x industry average) and internal fair value estimates creates a compelling value argument.
  • Bulls focus on discounted valuation relative to the sector, as well as ONEOK’s track record of revenue and profit growth.
  • Key risks remain, including high debt from recent acquisitions and sensitivity to commodity prices. However, the margin of safety implied by current trading levels is a core part of the consensus case.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for ONEOK on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Have your own take on the latest results? Take a few minutes to shape your own perspective and share your narrative: Do it your way

A great starting point for your ONEOK research is our analysis highlighting 6 key rewards and 1 important warning sign that could impact your investment decision.

See What Else Is Out There

ONEOK faces elevated debt from recent acquisitions and heightened sensitivity to commodity swings. These factors could limit flexibility even as earnings grow.

If financial health is a priority, use our solid balance sheet and fundamentals stocks screener (1987 results) to target companies with stronger fundamentals and lower leverage. These companies are built to weather volatility better than peers.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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