Williams Earnings: Recent M&A Is Driving Outperformance; Boosting Fair Value Estimate 13%

Williams’ WMB third-quarter results were very good, and after incorporating them into our model, we are increasing our fair value estimate to $36 per share from $32. Our narrow moat rating is unchanged. Overall EBITDA increased 1% to $1.7 billion over last year’s levels, with higher contributions from recent acquisitions MountainWest and NorTex more than offsetting weaker contributions from the modest upstream segment due to lower realized oil and gas pricing. Management raised 2023 EBITDA guidance by about $100 million at the midpoint to $6.7 billion, reflecting better-than-expected performance from the MountainWest and NorTex deals, in our view.

Williams is continuing to be active in the M&A market. It is buying the 50% of Rocky Mountain Midstream it does not own from KKR as well as the Cureton Front Range assets for $1.27 billion. These assets are primarily located in the DJ Basin and will make Williams the third-largest gathering and processing operator in the area. Funding for the deals is coming from the $348 million sale of the Bayou ethane system for a rich 14 times multiple, as well as a net expected payment of $512 million from Energy Transfer after attorney fees to settle the dispute over the scrapped merger that has been in litigation since 2016. We expect the transactions will push Williams’ 2024 EBITDA to about $7 billion.