ONEOK's Hidden Value: Why Acquisitions Signal a Coming Re-Rating

ONEOK (NYSE: OKE) is poised to unlock a significant valuation renaissance as its recent acquisitions—Delaware Basin JV, EnLink Midstream, and Medallion Midstream—begin delivering on promised synergies. Despite a 9.4% stock decline over three months, the market has yet to fully appreciate the operational efficiencies and cost savings these deals will generate. With synergies projected to reach $250 million to $450 million annually by 2026 and a conservative 11x 2025E EBITDA multiple, ONEOK presents a compelling contrarian opportunity. Investors who act now may capture a re-rating as the market catches up to the company's strategic execution.

The Undervalued Synergy Machine

ONEOK's acquisitions since 2024 have been meticulously structured to create a vertically integrated midstream powerhouse. The $940 million Delaware Basin JV acquisition in May 2025, combined with the $4.3 billion EnLink deal and $2.6 billion Medallion purchase, have already begun consolidating critical assets in the Permian Basin and Gulf Coast. These moves target $250 million to $450 million in annual synergies by 2026, driven by three key areas:

1. Commercial Synergies: Integrating EnLink's Mid-Continent gathering systems with ONEOK's infrastructure reduces redundancies and improves asset utilization.
2. Operational Synergies: Optimizing Gulf Coast NGL fractionation (220,000 barrels/day) and Permian crude gathering (1.6 million barrels/day) cuts costs and boosts throughput.
3. Strategic Footprint Expansion: The combined 60,000-mile pipeline network now spans high-growth regions like Louisiana and the Permian, capitalizing on LNG, ammonia, and hydrogen demand.

Why the Market Has Missed the Opportunity

ONEOK's stock has lagged due to near-term headwinds, including integration costs and elevated debt post-acquisition. Pro forma net debt/EBITDA hit 3.9x in 2025, but the company's $6.0 billion committed financing and FCF growth aim to reduce this to 3.5x by 2026. Analysts, however, remain cautious: ONEOK's Zacks Rank #3 (Hold) reflects skepticism about near-term execution. Yet this overlooks two critical factors:

1. Cash Flow Accretion: The deals are already immediately accretive to EPS and FCF per share, with synergies driving a 2026 EBITDA margin expansion.
2. Undiscounted Growth: ONEOK's 60,000-mile network and Permian exposure align with long-term energy trends. Peers like Energy Transfer (ET) trade at 12x EBITDA, yet ONEOK's 11x multiple leaves room for a re-rating as synergies materialize.

The Case for a Buy Now

Investors should view ONEOK's current valuation as a mispricing. Key catalysts include:
- Synergy Realization: The $250M-$450M target is achievable by 2026, with 2025 serving as a transition year.
- Debt Reduction: FCF growth and asset sales could accelerate deleveraging beyond 3.5x.
- Industry Comparables: ONEOK's Permian and Gulf Coast assets mirror Devon Energy's (DVN) Williston Basin plays, which saw a valuation jump post-acquisition.

Risks and Considerations

Integration delays or a prolonged oil price slump could pressure margins. However, ONEOK's fee-based contracts (60% of revenue) and industrial demand for its NGL assets provide a safety net. Meanwhile, its 4.5% dividend yield offers downside protection.

Final Take: Buy Before the Gap Closes

ONEOK's stock is stuck in a valuation rut, but the math is clear: $450 million in synergies at 11x EBITDA implies a 20% upside by 2026. With synergies underdelivering only if the Permian dries up—a low-probability scenario—the case for a long position is strong. Investors ignoring ONEOK's operational progress risk missing a re-rating as these deals finally hit their stride.

Recommendation: Buy OKE at current levels. Target: $25/share by 12/2026. Risk: $18/share.