ONEOK's Strong 2025 Earnings Meet Guidance, But Leverage and Capex Risks Linger

What happened

ONEOK announced full-year 2025 results with net income up 11% and adjusted EBITDA up 18%, aligning with its previously reaffirmed guidance ranges. This performance highlights the company's fee-based earnings growth from acquisitions and volume gains in key basins like the Permian and Rockies, as noted in the DeepValue report. However, the report critically points out that elevated leverage at 4.79x net debt/EBITDA and high capital expenditure continue to strain free cash flow, leaving little margin for error. The inclusion of 2026 financial guidance in the announcement is crucial, as it will test management's ability to deleverage toward a 3.5x target while funding ongoing projects. Investors should look beyond the positive headlines to assess whether operational momentum can sustainably offset balance sheet pressures and support the stock's potential re-rating.

Implication

The confirmed 2025 performance supports the base case scenario in the DeepValue report, potentially driving the stock toward the $85 implied value if 2026 guidance indicates continued EBITDA growth. However, with leverage still high and free cash flow after dividends and capex near breakeven, the company remains vulnerable to any volume or spread weakness that could derail deleveraging plans. The 2026 guidance will serve as a critical near-term catalyst; if it shows mid-single-digit EBITDA growth and a clear path to lower leverage, it could enhance investor confidence and total returns. Conversely, a guidance miss or stalled progress on debt reduction would amplify downside risks, aligning with the bear case value of $65 and threatening the dividend's sustainability. Overall, while the news is operationally positive, it underscores the need for vigilant monitoring of execution risks, as the thesis hinges on balancing aggressive growth with financial discipline.

Thesis delta

The positive 2025 earnings reinforce the existing investment thesis by validating ONEOK's operational execution and guidance adherence, which are key to its potential buy rating. However, the thesis does not shift materially, as the core challenges—high leverage, capex intensity, and the need for deleveraging by 2026—remain unresolved and central to future returns.