On May 22, 2013, we upgraded our recommendation on Plains All American Pipeline L.P. (PAA) to Outperform from Neutral. The partnership currently has a Zacks Rank #3 (Hold).
Why the Upgrade?
There are several catalysts, including Plains All American Pipeline’s favorable performance in the first quarter of 2013, strong contribution from inorganic as well as organic projects and operational efficiency, which led to the improvement of the stock.
In first-quarter 2013, the partnership’s earnings per unit and revenues beat the Zacks Consensus Estimates and the year-ago figures owing to proper implementation in margin-based Supply and Logistics segment, and robust performance from the fee-based Transportation and Facilities segments.
It is evident from Plains All American Pipeline’s recent activities that the partnership continues to follow steady organic growth strategy. The partnership is developing its Mississippian Lime pipeline, Rainbow 2 pipeline and Gardendale Gathering System projects.
During the first three months of 2013, Plains All American Pipeline’s net cash provided by operating activities increased more than 200% year over year to $979 million. Strong liquidity position enables the partnership to invest additional $300 million in 2013, which will drive the capital expenditure to $1.4 billion.
Apart from investment in several projects, strong financial position also allows Plains All American Pipeline to enhance the shareholders’ wealth through increase in cash distribution at regular intervals. Recently, the partnership’s quarterly cash distribution rate increased to 57.50 cents from 56.25 cents per unit in the last quarter.
We believe Plains All American Pipeline’s future growth will be from its strategic acquisitions, and strong crude oil pipelines and storage asset-portfolio in prospective oil producing territories.
Other Stocks to Consider
Other stocks from the industry that are presently performing better include Delek Logistics Partners, LP (DKL) with a Zacks Rank #1 (Strong Buy), and Enbridge Energy Management LLC (EEQ) and Kinder Morgan Management LLC (KMR) with a Zacks Rank #2 (Buy).
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