Turnaround for Williams (WMB): Pipeline profits

"In the 1990s, Williams branched out into new businesses, including telecommunications (initially by running fiber optic cable through decommissioned natural gas pipelines), electric power generation and energy trading.

"Much of this expansion was funded by debt, and by the end of 2002, the company's debt burden had brought it close to bankruptcy. Williams sold off assets, reduced debt and refocused on natural gas.

"The company prospered again for several years until natural gas prices fell sharply in 2008, driving Williams' stock down from above 40 last June to below 10 in March of this year.

"Williams has some of the premier assets in each of its business segments: exploration & production, mid-stream (gas gathering and processing) and pipelines. When natural gas prices recover, the company's profits should increase significantly across all of its lines of business.

"In exploration & production, Williams is one of the lowest cost producers in the U.S. Moreover, the company has been steadily adding to its reserves.

"In the mid-stream sector, Williams' large scale generates industry leading margins. The pipeline business is steady but still has attractive growth prospects.

"While the price of natural gas is suffering from a temporary imbalance of supply and demand, its longer-term fundamentals look attractive. On the supply side, the drop in prices has driven some of the weaker players out of the market.

"On the demand side, natural gas is viewed as a preferred energy source for the future because of its lower environmental impact and its domestic availability.

"As the economy improves, natural gas prices should rebound, particularly as other energy sources such as coal and nuclear face increasing regulatory issues.

"Although the company does have a fair amount of debt, it has strong cash flows with which to service that debt.

"Moreover, it does not have any significant debt maturities until 2011. And its processing and pipeline businesses provide a steady stream of revenue and cash flow even if natural gas prices stay low.

"Williams is one of the leading players in all aspects of the natural gas markets. While those markets have been depressed recently, we expect them to rebound which should drive Williams' stock significantly higher."

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