On Dec 29, we have issued an updated research report on Plains All American Pipeline, L.P. (PAA). The partnership’s steady investments in expanding operations through organic ventures and strategic acquisitions backed by stable liquidity position bode well with its long-term strategy. In addition, its practice of paying regular cash distribution is commendable. However, strict government legislations and dependence on third-party service providers at the Supply & Logistics segment remain potential setbacks.
This Zacks Rank #3 (Hold) stock’s third-quarter 2014 earnings and revenues missed the Zacks Consensus Estimate. The bottom line also slumped year over year primarily due to increase in total expenses and units outstanding. However, revenues improved from the prior-year figure due to higher contribution from the partnership’s Transportation, Supply & Logistics, and Facilities segments.
Plains All American continues to pursue a systematic organic and inorganic growth strategy to strengthen its footprint in several mineral-rich regions, such as the Permian Basin and the Eagle Ford Shale. The partnership invested $1.71 billion during the first nine months of 2014 and projects expenditure in the range of $1.5–$2.0 billion in 2015.
Plains All American’s initiatives to increase the takeaway capacity of the Cactus Pipeline and scheduled completion of the Cushing Terminal Projects and the Gulf Coast Pipeline will boost its service capacity substantially. Moreover, its acquisition of 50% interest in BridgeTex Pipeline Company from Occidental Petroleum Corporation (OXY) will allow the partnership to meet increasing midstream service demand from its customers.
Plains All American maintains a stable liquidity position and cash generation capacity. The partnership’s total available liquidity as of Sep 30, 2014 had stood at approximately $2.55 billion while its operating cash flow came in at roughly $1.28 billion during the first nine months of 2014. A favorable financial position allows the partnership to invest substantially in expansion projects.
Plains All American is also keen on maximizing unitholder wealth through the payment of cash distributions at regular intervals. In Nov 2014, the partnership paid a quarterly distribution of 66 cents per unit, up around 2.3% sequentially.
On the flip side, stringent government regulations for transporting and processing materials remain our major cause of concern. Any modification in regulations might impact Plains All American’s operating costs adversely.
Key Picks from the Sector
Some better-ranked stocks in the sector include Atlas Pipeline Partners, L.P. (APL) and Spectra Energy Partners, LP (SEP), both carrying a Zacks Rank #1 (Strong Buy).
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