When investors see a new Neutral rating issued by Wall Street analysts, they likely assume that this means that the stock is fairly valued for investors. The problem is that not all Neutral ratings are created equal — ditto for Buy and Sell ratings. Most Buy ratings come with upside projections of 8% to 15% for well-established stocks.

So, what are investors supposed to make of ONEOK Inc. (NYSE: OKE) being assigned a new Neutral rating? The reality is that this Neutral rating actually comes with much implied upside. Credit Suisse’s John Edwards assigned a $41.00 price target, and that is against a prior close of $35.19.

The Credit Suisse call in ONEOK implies upside of 16%, plus then there is the payout north of 7% that investors have to think of when it comes to a total return for income and capital being returned to shareholders. All in all, this is over 20%. Does that sound like a Neutral rating?

One thing to consider is that Credit Suisse rates stocks based on a sector-call view rather than on an absolute market-call view. That means that they rate stocks against their perceived direct peers. Sometimes there can even be big upside in calls to the firm’s price target even if an Underperform rating is assigned.

ONEOK is the pure-play general partner of ONEOK Partners L.P. (NYSE: OKS), which has an Outperform rating and a $40.00 price target. That leaves even more upside, considering its most recent $32.17 close and its payout yield-equivalent of 9% or so. It receives its cash flow from its GP and LP interests in the “OKS” partnership.

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Credit Suisse’s Neutral rating was assigned due to the following factors:

• ONEOK’s dividend growth relative to peers is below average.
• Its two-year dividend growth rate of 7.2% is well below the peer average of 18.5%, and indicates lower relative total return versus peers.
• Its commodity exposure is above average relative to master limited partnerships (MLPs) overall.
• Over one-third of its margin dollars are exposed to commodity prices in a normal market.

There are positives in the note as well, hence the upside to its price target. Its prospects are said to be improving sequentially, with a modest and improving distribution coverage ratio. The report also noted that contract renegotiations could give an added boost by year end. Credit Suisse believes that ONEOK Partners has secured capital for about three quarters, after a recent private placement should secure it and help to improve its payout ratio. Another positive is that ONEOK has additional capacity to take more partnership units in the future if equity capital markets remain challenging.

Another positive is a $4 billion to $5 billion capex backlog, on top of the $3 billion to $4 billion in execution. An additional risk is that capital access uncertainties surrounding the capital spending backlog financing could limit the partnership’s expansion execution and could impair distribution growth — which could impact ONEOK’s dividend growth.

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ONEOK shares were last seen down 1.1% at $34.80 on Monday in midday trading. Its 52-week trading range is $31.43 to $69.06 and its consensus analyst price target is $41.08. ONEOK Partners units were last seen down 1.6% at $31.65, within a 52-week range of $26.02 to $57.96 and with a consensus price target of $38.13.

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