Williams Keeps Neutral Rating

We are maintaining our Neutral recommendation on Williams Companies with a target price of $23.
 
We like Williams' strong business mix, attractive growth opportunities in its low-risk upstream model and relatively stable fee-based midstream services. The company's high growth exploration and production (E&P) business is nicely complemented by its midstream assets, which are less sensitive to commodity prices and help Williams to maintain a steady stream of revenue and cash flow even if natural gas prices stay low.
 
Through its recently concluded $12 billion restructuring program, Williams has combined its pipeline and processing units to create one of the largest natural gas partnerships in the nation. We believe that the consolidation will allow Williams to simplify its structure, pay down debt, drive growth, and unlock value for its shareholders.
 
However, Williams' significant exposure to the highly volatile and cyclical E&P sector is a cause for concern. The company, which derives around 25% of its income from E&P operations, has seen its revenue and income plummet in recent quarters on the back of lower commodity prices. Other negatives in the Williams story include a relatively leveraged balance sheet and the challenging business environment for pipeline operators.  
 
Considering these factors, we do not anticipate a significant upside and expect Williams to perform in line with the broader market.
 
Tulsa, Oklahoma-based Williams is an integrated energy firm that primarily finds, produces, gathers, processes, and transports natural gas. The company's operations are focused in the Pacific Northwest, Rocky Mountains, Gulf Coast, Eastern Seaboard, and the province of Alberta in Canada. As of year-end 2009, Williams had 4.5 trillion cubic feet equivalent (Tcfe) in proved reserves (97% natural gas).