ONEOK: Now Is The Time To Load Up

ONEOK (OKE) posted robust Q2 2025 results, with revenue surging 61.2% to $7.89 billion and adjusted EBITDA up 22%, largely propelled by recent strategic acquisitions and their associated synergies. The company is actively pursuing further growth through new projects like the Big Horn CO2 plant and aims to achieve its 3.5x leverage target by 2026. Despite an 11% share price decline since June, OKE appears considerably undervalued at a 7.1x forward P/OCF, presenting a potential 19% upside to a $90 fair value, complemented by a 5.6% forward dividend yield, though commodity price volatility remains a risk.

Analysis

ONEOK (OKE) demonstrated significant top-line expansion in its Q2 2025 results, with revenue increasing 61.2% year-over-year to $7.89 billion and adjusted EBITDA growing 22% to $1.98 billion. This growth is predominantly fueled by an aggressive acquisition strategy, including the recent integration of EnLink Midstream, Medallion Midstream, and Delaware G&P assets. Management projects substantial future benefits from these deals, anticipating over $350 million in synergies from the Magellan acquisition by the end of 2025 and $250 million from the EnLink and Medallion deals. Further organic growth is planned via new capital projects, such as the $365 million Big Horn CO2 processing plant expected to be operational by mid-2027. Despite these strong fundamentals and a clear growth trajectory, OKE's stock has underperformed, declining 11% since June, which has compressed its valuation to a 7.1x forward P/OCF ratio, well below its 10-year average of 9.7x. This valuation is complemented by a 5.6% forward dividend yield, which is supported by a mid-70% payout ratio and a track record of over 25 years without a dividend cut. However, risks remain, particularly regarding commodity price volatility, which prompted a $200 million downward revision to the 2026 adjusted EBITDA outlook, and the execution risk of achieving its 3.5x leverage target by 2026.

Key Decisions for Investors

• Investors should consider the recent 11% share price weakness as a potential entry point, given the valuation disconnect with a forward P/OCF of 7.1x compared to its historical average and the strong underlying growth from acquisitions.
• For income-focused portfolios, the 5.6% forward dividend yield appears secure with a mid-70% payout ratio, but continued monitoring of the company's progress toward its 3.5x leverage target is crucial for long-term dividend sustainability.
• It is critical to monitor commodity price movements and OKE's quarterly synergy realization updates, as the $200 million downward revision to 2026 EBITDA guidance indicates that these factors directly impact the company's earnings profile and ability to de-lever.
• The potential for a total return driven by both multiple expansion and earnings growth is significant, but this thesis is contingent upon management's successful execution of integrating recent acquisitions and delivering new projects like the Big Horn plant on schedule.