Citi Resumes Coverage Of Williams Companies, Williams Partners

Citi has resumed coverage of Williams Companies Inc (NYSE: WMB) and Williams Partners LP (NYSE: WPZ) with Neutral ratings.

The brokerage expects expect Williams Partners to cut its distribution to $0.50/quarter, and Williams Companies to cut its dividend to $0.20/quarter, which represent sequential reductions of 41 percent and 69 percent, respectfully.

"We believe the Williams' complex relatively inexpensive valuation is balanced by a need for reduced payouts and balance sheet right-sizing," analyst Faisel Khan wrote in a note.

Williams Partners failed to meet its $1 billion plus asset sales target in the first half of 2016 to fund its 2016 growth capital budget of $2.1 billion.

"We believe a distribution cut would provide much needed flexibility and allow WPZ to maintain its investment grade credit rating," Khan noted.

Further, the analyst highlighted that Chesapeake contracts represent a challenge and a possible opportunity. Williams Partners generates about 20 percent of its EBITDA from Chesapeake Energy Corporation (NYSE: CHK) on a trailing basis.

"Counterparty risk has weighed on WPZ units over the course of the last year, and we believe there is mutual interest in finding a win-win solution for both parties. We believe swapping the value of the Barnett MVC payments for CHK stock could be an opportunity for CHK and WPZ," Khan continued.

On the corporate governance front, the letters of resignation from the activist board members earlier this month were critical of current management. Furthermore, the resignation of other Board members also cast a level of doubt over WMB's management team.

"We believe the next shareholder meeting in November will be critical for WMB investors. Electing and proposing a slate of directors with industry experience and a track record of management/capital discipline are critical," Khan added.

The analyst has a price target of $26 on Williams Companies and $40 price target on Williams Partners.