The Williams Companies WMB, a leading energy infrastructure firm in North America, has been riding high in the past year. The stock has surged more than 61% during this period, outperforming the S&P 500 and its midstream competitors like TC Energy TRP and Kinder Morgan KMI. This strong performance leaves investors wondering whether now is the time to take profits or stay invested.

WMB, TRP and KMI 1-Year Stock Performance

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What Makes Williams Stand Out

Expanding Natural Gas Infrastructure: Williams Companies continues to strengthen its natural gas infrastructure, with eight new interstate transmission projects set to add 1.25 Bcf per day of capacity in 2025. These expansions, including the Louisiana Energy Gateway and the Southside Reliability Enhancement project, will support rising LNG exports, power generation demand, and industrial needs. With natural gas fundamentals remaining strong, these high-return projects position Williams for sustainable earnings growth.

Record-Setting Demand: Williams' Transco pipeline set a new record in early 2025, moving 522 million decatherms—10% above the prior peak in January 2022. Despite lower natural gas prices, the company delivered 12 consecutive years of EBITDA growth, showcasing its operational resilience. The 2024 adjusted EBITDA of $7.08 billion exceeded the initial guidance, highlighting Williams' ability to thrive in varied price environments. With 2025 guidance raised to $7.65 billion, Williams’ financial strength and consistent cash flow provide a solid foundation for further expansion.

Strategic Acquisitions: Williams' recent acquisitions, including full ownership of the Wamsutter upstream JV and Rimrock in the DJ Basin, enhance its asset portfolio while optimizing margins. The company maintains a disciplined capital strategy, leveraging bolt-on acquisitions without issuing equity, ensuring accretive growth. Additionally, its 10 Bcf Gulf Coast storage expansion is poised to capitalize on increasing LNG demand, further boosting revenues.

Dividend Growth: With a quarterly dividend of 50 cents per share, Williams continues to appeal to income-focused investors. Its attractive dividend yield and a history of outperforming its midstream peers make it a reliable option for consistent returns. Over the last five years, Williams has delivered a compound annual dividend growth rate exceeding 4%, reinforcing its status as a top choice for long-term investors.

Earnings Momentum: The company’s earnings track remains impressive, with Williams surpassing expectations in each of the last four quarters. In the fourth quarter, the company reported earnings of 47 cents per share, exceeding the consensus estimate by 4.4%. This success adds to its trailing four-quarter average earnings surprise of 9.4%, underscoring its operational strength.

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Despite Williams Companies' robust long-term potential, the hurdles posed by current market conditions and pressing company-specific challenges are impossible to overlook.

Challenges Looming for WMB

High Debt Levels: With a debt-to-capitalization ratio of 64.1% at the end of 2024, Williams carries a heavier debt load than many peers. This high leverage increases financial risk, leaving the company vulnerable to market downturns or unexpected challenges that could strain its balance sheet.

Project Delays in Deepwater Assets: Williams has encountered delays in key offshore growth projects, particularly the Shenandoah and Whale developments. These setbacks have negatively impacted the expected revenue contribution from deepwater assets, limiting near-term growth potential. While management remains optimistic about long-term value creation, these delays add uncertainty to 2025 earnings projections.

Gathering & Processing Outlook Faces Uncertainty: Williams’ Northeast and Haynesville gathering operations remain exposed to fluctuating producer activity. While higher natural gas prices in early 2025 are encouraging, producers have been hesitant to ramp up drilling aggressively. The company has tempered expectations for volume growth, citing producers' continued focus on capital discipline. If drilling activity does not accelerate as expected, gathering volumes could remain sluggish.

Rich Valuation: Williams' stock currently trades at a 29% premium to its three-year average EV/EBITDA multiple of 13.05, with a valuation of 16.78. This elevated valuation suggests limited near-term upside compared to its peers, whose average is 14.52. The lofty pricing raises concerns about whether future growth is already priced in the stock.

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Execution Risks: The company’s growth strategy relies on several large-scale infrastructure projects, which are subject to regulatory and permitting approvals. Prolonged delays or unfavorable rulings could hinder progress, impacting the projected revenue growth timeline. As seen with other midstream operators, these external risks remain significant and could create uncertainty around the company’s ability to deliver on its long-term targets.

Final Take: Hold for Now

The Williams Companies remains an attractive long-term investment, backed by its robust infrastructure, strategic portfolio shifts and consistent dividend growth. However, its elevated valuation suggests that much of its growth potential is already reflected in its stock price. Additionally, risks tied to debt levels, uncertain gathering outlook and project execution warrant caution.

For investors, holding WMB shares could still offer rewards, given its strong dividend yield and earnings momentum. However, waiting for a more attractive valuation before adding or increasing exposure might be the wiser strategy.

WMB carries a Zacks Rank #3 (Hold) at present.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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