(WMB) The Williams Companies Reveals 2012-13 Forecast

The Williams Companies, Inc. (WMB) disclosed plans to transform itself into a high-dividend, high-growth energy firm at its recent Analyst Day.

The company also guided 2012–2013 adjusted earnings per share and cash flow from continuing operations, taking into account the upcoming Exploration & Production spin-off and the related exclusion of those results from Williams’ continuing operations.

In February 2011, Williams announced plans to separate its exploration and production business from its pipeline/infrastructure operations, thereby creating two independent companies. The spin-off, subject to certain precedent conditions, will see the sale of up to 20% of Williams’ stake in the exploration and production business through an initial public offering. The rest of the upstream business will be spun off to Williams’ shareholders next year.

Williams expects to generate earnings per share in the range of $1.15 to $1.60 for 2012 and in the range of $1.15 to $1.80 for 2013. The company projects cash flow from continuing operations between $1,950 million and $2,450 million in 2012, while 2013 is likely to be between $2,050 million and $2,450 million.

However, the company reiterated its previously issued guidance for 2011, which includes contributions from the Exploration and Production segment. Management guided earnings per share between $1.35 and $1.85 and cash flow from continuing operations in the range of $2,755 million to $3,355 million.

Williams is an integrated energy firm that primarily explores, produces, gathers, processes and transports natural gas in the Rocky Mountains, Gulf Coast, Pacific Northwest, Eastern Seaboard and the Marcellus Shale in Pennsylvania. Currently, the company operates through four business segments: Williams Partners (which includes the company’s 84% owned master limited partnership Williams Partners L.P. (WPZ), Exploration & Production, Midstream Canada & Olefins, and Other.

We like the company’s strong business mix, the growth opportunities in its low-risk upstream model and its relatively stable fee-based midstream services. We also think that the recent consolidation program will allow Williams to simplify its structure, drive growth and unlock value for shareholders.

However, Williams’ relatively leveraged balance sheet and exposure to volatility in prices for natural gas and natural gas liquids offset these strengths. As such, we believe that Williams’ shares are fairly valued at current levels, adequately reflecting the company’s growth prospects and commodity-price leverage. Hence, we expect the company to perform on par with other industry players and maintain a long-term Neutral recommendation.

WILLIAMS COS (WMB): Free Stock Analysis Report

WILLIAMS PTNRS (WPZ): Free Stock Analysis Report

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