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.
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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