Plains GP Holdings Downgraded At Barclays On Dividend Concern - Plains All American (NASDAQ:PAA), Plains GP Holdings (NASDAQ:PAGP)

Since Plains All American Pipeline, L.P. PAA is unlikely to be able to generate coverage above 1.0x for at least the next couple of years at the current distribution levels, a simplification is expected to occur along with a 25 percent distribution cut, Barclays’ Christine Cho said in a report. She added that following the simplification, Plains GP Holdings LP PAGP is likely to remain outstanding as a C-corp tracking stock to Plains All American Pipeline.

Analyst Christine Cho downgraded the rating on Plains GP Holdings from Overweight to Equal Weight, while raising the price target from $8 to $11.

Dividend Concerns

Plains GP Holdings would likely need to cut its dividend by 25 percent as a result of the simplification transaction and the distribution cut at Plains All American Pipeline. The 2017 dividend and target yield estimates have been reduced from $0.924 to $0.69 per share and from 11 percent to 6 percent, respectively.

“We expect the growth rate to be in line with the underlying PAA units it holds as PAGP won't be paying taxes for the foreseeable future. However, with the likelihood that PAGP will trade at a better valuation than PAA due to the wider investor base it will attract, management could also utilize PAGP as another currency,” Cho wrote.

The EPS estimates for FY1 and FY2 have been reduced from $0.44 to $0.40 and from $0.50 to $0.32, respectively.

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