By Sam Boughedda
ONEOK (NYSE:OKE) was upgraded to Buy from Neutral, with its price target lifted by $1 to $72 per share by Citi analysts on Tuesday.
The analysts outlined two key drivers for the upgrade: OKE being well-positioned to achieve the high end of its 2023 guidance range and the fact that Citi doesn't believe the Street consensus reflects the company's torque to volume growth.
"Increasing rig counts, improved ethane recovery economics, and the potential for reduced third-party frac fees once MB-5 enters service all present upside relative to what we believe is imputed into the current guidance range. As such, we increase our '23 EBITDA estimate to a street high $4.7bln," they stated.
"We don't believe the Street consensus properly reflects OKE's torque to volume growth, particularly following the recently announced OPEC+ output cut, which we expect to result in increased associated gas and NGL production," they added. "An acceleration in drilling activity could hasten the need for additional Elk Creek capacity by 2027. On OKE's provided sensitivities, this expansion could drive as much as $400mm (+10%) of incremental EBITDA at full rates."
The analysts also said the ethane recovery will likely be a tailwind as economics continues to improve.