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Williams Companies, Inc., (NYSE:WMB) a pipeline operator and natural gas producer, looks like a mid- to long-term speculation worth considering once the market shows signs of bottoming out. Price targets for the $35 stock range from $32 to $49. The company is the midst of a multi-year turn around, which has included selling assets and improving its balance sheet while at the same time planning for growth.

Based on its historic performance compared with its peers WMB doesn't look like the best opportunity. But it's going through a major transition that make its recent performance less relevant than usual, and the market seems to be saying it's moderately optimistic that Williams will become a more valuable investment during the next few years. Williams' valuation valuation ratios look relatively cheap. The PEG ratio is only 1.01, the price/sales ratio for the trailing 12 months is 1.59 and the forward price earnings ratio for 2008 is 19.3 and for the trailing 12 months is 23.45. Compared with it's peers WMB looks attractive.

WMB is highly leveraged but moving to reduce its debt and improve its credit ratings. In its latest quarter, its leverage ratio was a 4, down from 4.18 at the end of 2006 and a high of 6.93 at the end of 2002. The industry's average leverage is 2.3 and the S&P 500's is 5.2, according to Morningstar.com. WMB's debt-to-equity ratio was 115% at the end of the third quarter, down from 126% at the end of last year and a high of 269% at the end of 2003. It can afford such leverage because of its steady cash flow, but if the credit markets remain jittery, the markets may become nervous about highly-leveraged companies like WMB. Credit rating agencies in the last few weeks have upgraded WMB's debt following its sale of power trading portfolio and the pending sale of other assets. That debt no longer is "junk", according to Fitch, Moody's and Standard & Poor's. Williams pays a dividend yield of 1.32%.

Analysts for brokers tend to be optimistic and their recommendations should be considered accordingly The average rating by analysts is in the buy zone at 1.8, with one being a strong buy and five being a strong sell. Among independent (from the brokers) researchers, three are saying buy; three give the stock a neutral or hold. As usual, one research firm's buy is another's hold. Morningstar.com says that with WMB trading at about $35, its fair value is $32. Thus, Morningstar gives WMB three stars, which is a hold. Morningstar says the mean earnings per share growth estimate for WMB for 2008 is 11.11% compared with a mean estimate by analysts that in 2007 WMB will earn $1.62 per share, up 25.5% from $1.29 in 2006. Rochdale Research gives WMB a buy rating, while S&P gives it four stars out of a possible five. Reuters says it is "neutral" on WMB, which is the equivalent of market perform, and Sabrient Research says the stock is a "hold."

Technically, WMB has just become a sell on weekly charts; it's been a sell on the daily charts for about 10 trading days. While the market is down about 10% from its recent highs, WMB is down 7%. The stock's Beta, according to Reuters, is 1.55, which means the stock will move 1.55 times as fast as the market, falling when the market dips and vise versa. WMB's daily relative strength and accumulation/distribution indicators are pointing higher. WMB's point and figure chart has a price objective of $49, but in weak markets, such indicators have to be taken with a grain of salt or considered long-term possibilities.

Disclosure: Author has a long position in WMB

Source: Williams Companies: Long Term Buy in a Weak Market?