BUSINESS
Plains All American Pipeline, L.P., through its subsidiaries, engages in the pipeline transportation, terminalling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada. The company operates in two segments, Crude Oil and NGL. The Crude Oil segment offers gathering and transporting crude oil through pipelines, gathering systems, trucks, and at times on barges or railcars. This segment provides terminalling, storage, and other facilities-related services, as well as merchant activities.
INVESTMENT RATING
PAA’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be an important Value Builder.
Plains All American Pipeline has a current Value Trend Rating of A (Highest Rating).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. Plains All American Pipeline has a slightly positive Appreciation Score of 68 and a good Power Rating of 77, and the Highest Value Trend Rating results.
Plains All American Pipeline’s stock is selling well below targeted value. The current stock price of $17.49 compares to targeted value 12 months forward of $33.
This moderately high appreciation potential results in an appreciation score of 68 (only 32% of the universe has greater appreciation potential.)
Plains All American Pipeline has a Power Rating of 77. (PAA’s good Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 23% of companies in the universe.)
Factors contributing to this good Power Rating include: the recent trend in PAA’s earnings estimates has been favorable; the Pipe Lines, Excluding Natural Gas comparison group is in a strong phase currently; and recent price action has been slightly favorable.
INVESTMENT PROFILE
PAA’s financial strength is low. Financial strength rating is 29.
Relative to the S&P 500 Composite, Plains All American Pipeline LP has slightly more Value than Growth characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that PAA is extremely high risk. High expected growth is a positive for PAA. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, high stock price volatility, low historical growth, and high earnings variability. PAA’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. PAA has unusually low market capitalization.
CURRENT SIGNALS
Plains All American Pipeline’s current operations are strong. Return on equity is rising, reflecting: widening pretax margins; and rising leverage.
Plains All American Pipeline’s current technical position is very strong. The stock price is in a 21.9 month up move. The stock has appreciated 91.1% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Recent limited positive changes in fundamentals have benefitted Plains All American Pipeline LP (NASDAQ: PAA). Positive developments: the stock’s power rating rose above 70, and the consensus estimate for December, 2024 increased significantly. Negative development: significant quarterly sales deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of A. This review will be completed in the next several days.
Plains All American Pipeline LP (NASDAQ: PAA) has reported E.P.S. of $0.29 for its first fiscal quarter (ending March 31) versus $0.52 for the same period a year ago — a decline of -44%. Relative to the consensus estimate of $0.50, this was a shortfall of $-0.21. For the latest four quarters through March 31, E.P.S. were $1.16 compared to $1.52 a year ago — a decline of -24%.
Plains All American Pipeline LP (NASDAQ: PAA) stock increased 1.5% on 5/3/24. The shares closed at $17.49. Moreover, trading volume in this advance was unusually high at 161% of normal. The stock has been strong relative to the market over the last nine months but has declined -3.2% during the last week.
CASH FLOW
In 2023, Plains All American Pipeline LP generated a significant increase in cash of +$49 million (+12%). Sources of cash were larger than uses. Cash generated from 2023 EBITDA totaled +$2,416 million. Non-operating sources contributed +$379 million (+16% of EBITDA). Cash taxes consumed -$131 million (-5% of EBITDA). Re-investment in the business amounted to -$623 million (-26% of EBITDA). On a net basis, debt investors withdrew -$1,127 million (-47% of EBITDA) while equity investors pulled out -$865 million (-36% of EBITDA).
PAA’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Plains All American Pipeline Lp Peer Group. (Since 2020 Non-operating Income, %EBITDA has experienced a very sharp recovery.) In most years, Plains All American Pipeline LP was in the top quartile. Currently, Plains All American Pipeline LP is upper quartile at +16% of EBITDA (+$379 million).
PAA’s Cash Taxes, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Plains All American Pipeline Lp Peer Group. In most years, Plains All American Pipeline LP was in the top quartile. Currently, Plains All American Pipeline LP is upper quartile at -5% of EBITDA (-$131 million).
PAA’s Business Re-investment, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Plains All American Pipeline Lp Peer Group. (Since 2020 Business Re-investment, %EBITDA has experienced a very sharp decline.) In most years, Plains All American Pipeline LP was in the second quartile and top quartile. Currently, Plains All American Pipeline LP is slightly above median at -26% of EBITDA (-$623 million).
PAA’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Plains All American Pipeline Lp Peer Group. In most years, Plains All American Pipeline LP was in the second quartile and top quartile. Currently, Plains All American Pipeline LP is substantially below median at -47% of EBITDA (-$1,127 million).
PAA’s Equity Investors, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Plains All American Pipeline Lp Peer Group. (Since 2021 Equity Investors, %EBITDA has accelerated very sharply.) In most years, Plains All American Pipeline LP was in the third quartile and top quartile. Currently, Plains All American Pipeline LP is substantially below median at -36% of EBITDA (-$865 million).
PAA’s Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Plains All American Pipeline Lp Peer Group. In most years, Plains All American Pipeline LP was in the second quartile and top quartile. Currently, Plains All American Pipeline LP is at median at +2% of EBITDA (+$49 million).
PAA’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Plains All American Pipeline Lp Peer Group as well. In most years, Plains All American Pipeline LP was in the lower quartile. Currently, Plains All American Pipeline LP is lower quartile at +1%.
PROFITABILITY
PAA’s return on equity has eroded very significantly since 2014.
PAA’s very strong negative trend in pretax operating return significantly augmented by a very strong negative trend in non-operating factors is a major performance consideration.
The productivity of PAA’s assets rose over the full period 2014-2024: asset turnover has enjoyed a volatile overall uptrend that accelerated very sharply after the 2020 level.
More than offsetting this trend, however, pretax margin experienced a strong overall downtrend even as it experienced a very sharp recovery after the 2020 low.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
PAA’s return on equity is unavailable for the four quarters ended March, 2024.
Operating performance (pretax return on assets) is at the lower quartile (5.3%) reflecting asset turnover that is upper quartile (1.77X) and lower quartile pretax margin (3.0%).
Tax “keep” rate (income tax management) is at the lower quartile (73.6%) resulting in after tax return on assets that is at the lower quartile.
Financial leverage (leverage) is unavailable .
GROWTH RATES
There are no significant differences between Plains All American Pipeline’s longer term growth and growth in recent years.
Plains All American Pipeline’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 1.6% per year. (More recently it has been 18.2%.)
Total asset growth has been -2.7% per year. (More recently it has been 1.8%.)
Annual E.P.S. growth has been 0.4% per year. (More recently it has been 31.4%.)
Equity growth has been -5.9% per year. (More recently it has been 4.5%.)
No consensus growth rate forecast is available for Plains All American Pipeline.
Relative to the Plains All American Pipeline Lp Peer Group, Plains All American Pipeline LP’ historical growth measures are consistently lower quartile. Revenue growth (1.6%) has been lower quartile. Total asset growth (-2.7%) has been lower quartile. E.P.S. growth (0.4%) has been lower quartile. Equity growth (-5.9%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Plains All American Pipeline LP’! stock price performance has been variable and significantly below market. Between July, 2013 and May, 2024, Plains All American Pipeline LP’! stock price fell -67%; relative to the market, this was a -89% loss. Significant price moves during the period: 1) March, 2019 – March, 2020: -78%; and 2) June, 2014 – March, 2016: -65%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 43.8% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through April, 2024 of 43.8% is below median relative to Plains All American Pipeline LP Peer Group.
Current 5-year total return performance of 2.0% is at the lower quartile relative to the S&P 500 Composite.
Through April, 2024, with current 5-year total return of 2.0% relative to S&P 500 Composite at the lower quartile, Plains All American Pipeline LP’ total return performance is lower quartile relative to Plains All American Pipeline LP Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, PAA’s overall valuation is exceptionally low. All five factors are lower quartile. The highest factor is the ratio of enterprise value/earnings before interest and taxes, followed by the price/earnings ratio, then by the ratio of enterprise value/assets, then by the price/equity ratio. The lowest factor is the ratio of enterprise value/revenue.
Relative to Plains All American Pipeline LP Peer Group, PAA’s overall valuation is low. The highest factor, the price/earnings ratio, is at median. Ratio of enterprise value/earnings before interest and taxes is at median. Price/equity ratio is at the lower quartile. Ratio of enterprise value/assets is near the lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Plains All American Pipeline LP has a major value gap compared to the median. For PAA to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.42X to 0.81X. If PAA’s ratio of enterprise value/revenue were to rise to 0.81X, its stock price would be higher by $27 to $45.
For PAA to achieve upper quartile valuation relative to the Plains All American Pipeline LP Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.42X to 1.78X. If PAA’s ratio of enterprise value/revenue were to rise to 1.78X, its stock price would increase by $95 from the current level of $17.
VALUE TARGETS
PAA’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be an important Value Builder.
Plains All American Pipeline LP’ current Price Target of $34 represents a +93% change from the current price of $17.49.
This moderately high appreciation potential results in an appreciation score of 68 (only 32% of the universe has greater appreciation potential.)
Reinforcing this moderately high Appreciation Score of 68, the high Power Rating of 77 contributes to an Value Trend Rating of A.
Plains All American Pipeline LP’ current Price Target is $34 (-6% from the 2023 Target of $36 but +93% from the 05/03/24 price of $17.49). This plateau in the Target is the result of a +2% increase in the equity base and a -7% decrease in the price/equity multiple. The forecasted increase in cost of equity has a large negative impact on the price/equity multiple and the forecasted decline in growth has a large negative impact as well. Partially offsetting these Drivers, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 11.2% — slightly above our recent forecasts. Forecasted return on equity erratic but little changed between 2015 and 2023. The current forecast is well below the 2019 peak of 16%.
PTR’s growth forecast is 5.0% — slightly below our recent forecasts. Forecasted growth erratic between 2023 and 2023. The current forecast is below the 2023 low of 8%.
PTR’s cost of equity forecast is 5.8% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2023. The current forecast is below the 2019 peak of 8.8%.
At Plains All American Pipeline LP’! current price of $17.49, investors are placing a negative value of $-1 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 8.0% per year, and a return on equity of 9.2% versus a cost of equity of 5.1%.
PTR’s 2025 Price Target of $34 is based on these forecasts and reflects an estimated value of existing assets of $24 and a value of future investments of $10.
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