TCC takes a look at why the stock fell on Tuesday

Published By: Myrna Salomon on January 11, 2017 08:21 am EST

The Williams Companies Inc. (NYSE:WMB) stock tumbled 10.71% on Tuesday following its announcement regarding amendments to its general guidelines with its general partner Williams Partners LP (NYSE:WPZ).

According to the terms of the deal, William Companies would now increase its ownership in Williams Partners to 72%. The increase would come as Williams Companies would buy additional units of Williams Partners through a private placement. Williams Partners would be financing the increased stake by issuing 65 million common shares on top of a 9.75 million common shares underwriters option.

Despite a decline of more than 50% in crude oil prices, the master limited partnerships feel that the future is still bright. Therefore, Williams Partners has decided to increase its dividend by 50% to $0.30 per share.

The aforementioned measures would also halt Williams Companies from accessing public equity markets for the next few years. Williams Companies would also be reducing debt and is expected to have a cash coverage ratio of 1.2x in 2017.

Despite the latest updates, investors seemed unhappy with the decisions. Analysts Darren Horowitz and J.R. Watson from Raymond James has decided not to change the ratings but has indicated that the firm would keep a close eye on the stock performance in order to reassess any adjustments to the ratings. 

Raymond James believes William Partners is giving away cash payout for a much better outlook while Williams Companies is giving up leverage to attain long term stability. The sell-side firm further added: “While it is insightful regarding the appetite of today’s market, we feel it offers little in terms of read-through to the rest of the group at this time given how few entities remain that are visibly in need of a structural fix.”