ONEOK: Buy This Income Powerhouse While It's Undervalued

ONEOK (OKE) is highlighted as an attractive investment opportunity following a recent price pullback, now trading at a forward P/E of 15.2 with a 5% dividend yield. The energy midstream firm reported a 24% year-over-year increase in Q1 2025 adjusted EBITDA to $1.78 billion, significantly bolstered by the integration of EnLink and Medallion assets, which are projected to drive substantial synergy-fueled growth and contribute to reaffirming full-year adjusted EBITDA guidance of $8.2 billion. With a resilient fee-based model and tailwinds from rising LNG exports and Gulf Coast demand, OKE is positioned for continued strong performance and potential market-beating returns.

Analysis

ONEOK (OKE) is presented as a compelling investment following a significant price correction from a 52-week high of $118 to approximately $83, creating a more attractive entry point with a forward P/E of 15.2 and a 5% dividend yield. The company's resilience stems from its fee-based, 'toll-road' midstream model, which has delivered 11 consecutive years of adjusted EBITDA growth at a 16% CAGR through 2024, navigating multiple commodity cycles. Recent performance in Q1 2025 was robust, with adjusted EBITDA growing 24% year-over-year to $1.78 billion, driven by a 4% increase in NGL volumes and a substantial $450 million contribution from the recent EnLink and Medallion acquisitions. Management has reaffirmed its full-year 2025 guidance for $8.2 billion in adjusted EBITDA and projects an acceleration in 2026, with guidance for over 15% adjusted EPS growth and nearly 10% adjusted EBITDA growth. This outlook is underpinned by expected acquisition synergies of $250 million this year and organic growth catalysts, including rising LNG export demand and Gulf Coast industrial activity. While the company holds a BBB investment-grade rating, its net debt to TTM EBITDA ratio of 4.9x is currently above the industry's typical 4.5x safe harbor, though this is expected to trend down with anticipated EBITDA growth. On a relative basis, OKE's price-to-cash-flow ratio of 10.1 is favorable compared to peers KMI and WMB.

Key Decisions for Investors

• Consider the current price near $83 as a potential entry point, as the stock is trading at a forward P/E of 15.2, well below its historical average of 20, while offering a well-covered 5% dividend yield.
• Investors should closely monitor the integration of the EnLink and Medallion assets, as the realization of guided synergies is a key driver for future EBITDA growth and for reducing the current leverage ratio of 4.9x.
• Evaluate OKE for its potential total return, which combines the 5% dividend yield with management's guided mid-to-high single-digit EPS growth, while remaining aware of risks such as commodity price volatility impacting volumes and potential delays in synergy capture.
• For those seeking exposure to the energy midstream sector, OKE's valuation appears attractive on a price-to-cash-flow basis relative to peers and is strategically positioned to benefit from long-term growth in U.S. LNG exports.