Williams Q4 Earnings Miss, Capex Surge Highlights Overvaluation and Risk

What happened

Williams reported Q4 2025 earnings that missed analyst estimates, though revenues beat, reflecting ongoing volatility from derivative activities and marketing swings. The company unveiled aggressive 2026 capital spending plans, with growth capex projected at $6.1-$6.7 billion and maintenance at $850-$950 million, signaling a continued push into expansions despite financial pressures. This comes against a backdrop of significant overvaluation, with the stock trading around $61, approximately 73% above a DCF-based intrinsic value of $35.50, as highlighted in the DeepValue report. Elevated leverage—net debt/EBITDA at 4.1x and interest coverage of 2.8x—compounds risks, especially as high dividends and capex strain cash flow buffers. The news reinforces concerns about limited margin of safety, with the company's quality infrastructure overshadowed by stretched fundamentals and structural headwinds.

Implication

Investors should view Williams' increased 2026 capital spending as a double-edged sword: while it aims to drive growth through contracted projects, it exacerbates leverage and cash flow pressures in an already overvalued stock. The persistent premium to intrinsic value, coupled with derivative-driven earnings volatility and regulatory uncertainties, suggests limited upside and heightened downside risk if expansions underperform. For those holding the stock, this news supports the DeepValue recommendation to avoid adding or consider trimming positions, as the margin of safety remains thin. Key monitoring points include whether capex can be funded internally without worsening leverage, and if FCF improves to justify the valuation. Overall, until metrics like valuation and debt ratios show meaningful improvement, the investment case remains weak despite the company's solid asset base.

Thesis delta

The news of elevated 2026 capital spending does not shift the overvaluation thesis; instead, it underscores management's aggressive growth focus despite existing financial constraints. If anything, the increased capex could further strain cash flows and leverage, validating the DeepValue report's concerns about a thin margin of safety. No material change in the investment stance is warranted, with the stock remaining a potential sell until valuation aligns with fundamentals or financial risks abate.