Plains All American Poised Evenly - Analyst Blog

On Jun 18, we have issued an updated research report on Plains All American Pipeline, L.P. PAA. The midstream operator's continued focus on its operations though internal as well as inorganic growth strategy, strong liquidity position and practice of paying distributions at regular intervals are expected to play an important role for its future growth. However, we are concerned about stringent government regulations and over-dependence on third-party service providers at the supply and logistics segment, which may challenge the partnership's future performance.

Plains All American, a Zacks Rank #3 (Hold) stock, reported mixed performance in first-quarter 2014. Quarterly earnings and revenues beat the Zacks Consensus Estimates, primarily on the back of improved contribution from the Supply & Logistics and Transportation segments. However, earnings decreased year over year mainly due to higher total expenses.

Plains All American is an organization with midstream operations in the Eagle Ford shale, Permian and Williston basins, Canada and several other mineral-rich regions. The partnership continues to maintain a systematic organic and inorganic expansion program.

Plains All American plans to invest $1.75 - $1.95 billion in 2014 as expansion capital expenditure. The partnership is currently progressing well towards its several ventures, including Mississippian Lime pipeline, Western Oklahoma pipeline and the expansion of its facilities at Fort Saskatchewan Phase I. These projects will enable Plains All American to serve more customers, thereby improving cash inflows.

In addition, Plains All American follows an inorganic growth strategy. Previously, the partnership completed its merger with PAA Natural Gas Storage, L.P. and acquired the Canadian NGL business from a subsidiary of BP Corporation North America, Inc., a unit of BP plc BP.

Plains All American maintained a stable liquidity position backed by a strong cash generation capacity. As of Mar 31, 2014, the partnership's total liquidity was $1,982 million, consisting of available fund of $1,952 million under the revolving credit facilities and cash balance of $30 million. During first-quarter 2014, the partnership generated operating cash flow of $822 million.

In addition, Plains All American continues to share profit with its unitholders through payment of cash distribution at regular intervals. On May 15, 2014, the partnership paid quarterly distribution of 63 cents per unit, up 2.4% sequentially and 9.6% year over year.

However, Plains All American's operations are subject to stringent federal, state and local regulations for managing the transportation and processing of materials. Any modifications in rules may increase the partnership's operating costs.

Key Picks from the Sector

Some better-ranked stocks in the sector include Magellan Midstream Partners LP MMP and Delek Logistics Partners, LP DKL. All the stocks carry a Zacks Rank #1 (Strong Buy).