On Sep 25, we have issued an updated research report on Plains All American Pipeline, L.P. (PAA). The partnership’s favorable liquidity position, strategically positioned midstream properties and disciplined capital investment strategy will likely act as catalysts for its future performance. Payment of cash distribution at regular intervals is also appreciable. However, stringent government regulations and overdependence on third-party service providers at the Supply & Logistics segment are matters of concern.
Plains All American’s second-quarter 2014 earnings and revenues surpassed the Zacks Consensus Estimate, primarily on the back of higher sales in the Transportation, and Supply & Logistics segments. However, earnings decreased from the prior-year level mainly due to an increase in units outstanding and higher total costs.
Plains All American maintains a steady liquidity position backed by strong cash generation capacity. The partnership had total available liquidity of around $2.23 billion as of Jun 30, 2014 and operating cash flow of around $0.96 billion in the first half of 2014. Strong financial health enables Plains All American to follow systematic investments in growth projects.
Plains All American has a wide asset base, including the Eagle Ford Shale, the Permian and Williston basins, and the Gulf Coast, and continues to focus on expanding its midstream infrastructure. In the first half of 2014, the partnership invested around $1 billion in organic ventures and intends to spend $1.85–$2.05 billion for its expansion projects. These initiatives will enable Plains All American to increase its scale of operations, thereby serving more customers.
Apart from utilizing funds for growth ventures, Plains All American maintains a practice of paying stable cash distribution and increases the same frequently. On Aug 14, 2014, the partnership paid a quarterly distribution of 64.50 cents per unit, up around 2.4% sequentially. This effort will likely help to retain investor interest in the stock.
On the downside, we are concerned about stringent government regulations for transportation and processing of materials. Any alterations in rules might impact Plains All American’s cost of operations adversely.
Key Picks from the Sector
Other stocks worth considering in the sector include Delek Logistics Partners, LP (DKL), Spectra Energy Partners, LP (SEP) and Sunoco Logistics Partners L.P. (SXL).
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