WMB Williams Companies
Transco toll road with a data-center reinvestment runway; fairly priced and a durable compounder, not a bargain.
The story
Williams owns Transco, the largest US interstate natural gas pipeline, plus gathering and processing assets, so it collects fee-based, largely regulated toll revenue with high barriers to entry. The business is mature but has started a new reinvestment cycle: Transco expansions, LNG feed gas demand and behind-the-meter power projects for data centers. Those should support mid-single-digit growth at stable, high margins for about a decade.
Growth of about 8% reflects the contracted backlog of Transco and power projects coming into service, fading to 3% as gas demand matures. The 45% margin matches the TTM level for fee-based regulated assets rather than the 51.7% peak year. Sales-to-capital of 0.55 is above the trailing 0.29, which is distorted by heavy growth capex that has not yet produced revenue, but it stays low enough to fit an asset-heavy pipeline earning regulated returns. Beta is set below the 1.1 industry anchor because contracted cash flows behave more like a utility.
Value drivers
| Revenue growth (Y1) | 8.0% |
| Terminal growth | 3.0% |
| Forecast horizon | 10y |
| Target operating margin | 45.0% |
| Years to target margin | 3 |
| Sales-to-capital | 0.55 |
| Beta | 0.85 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 8.6% |
| Terminal WACC | 9.1% |
Valuation bridge
| PV of explicit FCFF | 27.13B |
| PV of terminal value | 37.76B |
| Equity value | 33.03B |
| ÷ shares → per share | $27.00 |
News
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- Data Center Buildout Boosts Natural Gas Use: WMB, AR & KMI to Gain?
- Pipelines Are Pumping AI’s Power. 2 Winning Stocks to Buy.
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 13.18B | 8.0% | 46.3% | 4.66B | 1.78B | 2.88B | 2.66B |
| 2 | 14.16B | 7.4% | 45.6% | 4.94B | 1.78B | 3.15B | 2.67B |
| 3 | 15.14B | 6.9% | 45.0% | 5.20B | 1.77B | 3.43B | 2.68B |
| 4 | 16.10B | 6.3% | 45.0% | 5.53B | 1.74B | 3.79B | 2.72B |
| 5 | 17.03B | 5.8% | 45.0% | 5.85B | 1.69B | 4.16B | 2.75B |
| 6 | 17.91B | 5.2% | 45.0% | 6.16B | 1.62B | 4.54B | 2.77B |
| 7 | 18.75B | 4.7% | 45.0% | 6.44B | 1.52B | 4.92B | 2.77B |
| 8 | 19.52B | 4.1% | 45.0% | 6.71B | 1.40B | 5.31B | 2.74B |
| 9 | 20.22B | 3.6% | 45.0% | 6.95B | 1.26B | 5.68B | 2.71B |
| 10 | 20.82B | 3.0% | 45.0% | 7.15B | 1.10B | 6.05B | 2.66B |
Key risks
- Capex overruns or FERC rate decisions push returns on new projects below the cost of capital
- Leverage of about $29B net debt combined with higher-for-longer rates squeezes equity value
- Long-run decline in gas demand from the energy transition shortens asset lives and lowers terminal growth
Catalysts
- Data-center power deals and Transco expansions placed into service, lifting EBITDA
- LNG export buildout raising Gulf Coast gas throughput and contract renewals at better rates