Are Downgrades to Williams Stock Appropriate?

Energy

Published: June 25, 2015 12:25 pm

Last Updated: April 27, 2020 4:31 pm

Energy infrastructure firm Williams Companies Inc. (NYSE: WMB) has picked up two downgrades from analysts following its rejection of a buyout offer of $64 a share (about $53 billion total, including debt) from peer Energy Transfer Equity L.P. (NYSE: ETE). On Tuesday, Tudor Pickering lowered its rating on Williams from Buy to Hold, and on Wednesday JPMorgan followed suit, dropping Williams from Overweight to Neutral.

It is reasonable to conclude that, absent a takeover deal such as the one Williams has refused, the company’s stock is nearly fully valued. The consensus price target for the stock is $60.36, according to Thomson/First Call, and the stock traded Thursday at a high of about $57.70. It closed last Friday at $48.34 and opened Monday at $60.86, following the revelation that the company had rejected the $64 a share offer. At Thursday’s trading high, the potential upside is less than 5%.

We do not want to put words in the mouths of the analysts at JPMorgan and Tudor Pickering, but if either could foresee an offer of more than $64 a share for Williams, would it not make sense for the brokers to tell their clients to buy more Williams shares?

If Energy Transfer is to be believed, Williams dodged all attempts at discussions for several months before declining the offer. Williams has said that the Energy Transfer offer “significantly undervalues Williams and would not deliver value commensurate with what Williams expects to achieve on a standalone basis.” That means that the company thinks that its “standalone” plans were going to achieve share price growth of about a third — from $48 to $64 — in a few months.

ALSO READ: Oil Analyst Picks 3 Top Stocks to Buy for the Rest of 2015

The only surprise to the recent downgrades to Williams stock is that only two of the 11 brokers following the stock have made the move.

Shares of Williams traded down about 1.3% in the noon hour Thursday, at $56.60 in a 52-week range of $40.07 to $61.38.

Take Charge of Your Retirement In Just A Few Minutes (Sponsor)

Retirement planning doesn’t have to feel overwhelming. The key is finding expert guidance—and SmartAsset’s simple quiz makes it easier than ever for you to connect with a vetted financial advisor.

Here’s how it works:

Answer a Few Simple Questions. Tell us a bit about your goals and preferences—it only takes a few minutes!
Get Matched with Vetted Advisors Our smart tool matches you with up to three pre-screened, vetted advisors who serve your area and are held to a fiduciary standard to act in your best interests. Click here to begin
Choose Your Fit Review their profiles, schedule an introductory call (or meet in person), and select the advisor who feel is right for you.

Why wait? Start building the retirement you’ve always dreamed of. Click here to get started today!