Rating cut following results and guidance
Shares of ONEOK slipped about 0.5% on Wednesday after Wolfe Research lowered its rating on the pipeline operator to Peer Perform from Outperform. The downgrade followed what the firm described as soft fourth quarter results and underwhelming fiscal 2026 guidance.
Wolfe analyst Keith Stanley said that while ONEOK provides diversified exposure to the midstream sector across fuels and regions, near term growth prospects appear limited in the current commodity environment.
Growth outlook seen as below peers
Stanley acknowledged that ONEOK maintains strong cash flows, a solid dividend yield and meaningful market share in the Bakken as well as in refined products. However, he argued that growth may trail competitors at a time when investors are increasingly favoring companies positioned as growth leaders.
In a lower oil price setting, the analyst expects challenges for ONEOK to accelerate earnings expansion. Fiscal 2026 EBITDA is projected to be roughly flat year over year, despite an estimated $150 million in incremental synergies. Core volumes in natural gas liquids and gathering and processing segments are guided to remain largely steady next year.
Under a scenario where crude prices average around 60 dollars per barrel, incremental EBITDA contributions are expected to be modest, at under 100 million dollars year over year.
Additional pressures on horizon
Looking ahead to 2027, Wolfe anticipates approximately 100 million dollars in potential headwinds tied to narrower Permian gas spreads. Based on its broader forecasts, the firm models EBITDA growth of about 3% to 4% annually over the 2025 to 2028 period.
When combined with a dividend yield near 5%, that growth profile may not meet Wolfe’s target of double digit total returns for most holdings.
The downgrade highlights a broader shift in midstream investor preferences toward companies offering stronger volume growth or leverage to rising commodity prices.
