Plains All American Downgraded At JPMorgan, Few Levers Seen In Near-Term

• Plains All American Pipeline, L.P. PAA shares have jumped 8 percent in the last one months.
• JP Morgan’s Jeremy Tonet downgraded the rating for the company from Overweight to Neutral, while reducing the price target from $43 to $28.
• Uncertainty in crude oil markets and its impact on the company’s volumes, along with limited visibility into future growth drivers remain concern areas, Tonet noted.

Plains All American announced a ~$1.5bn private placement of preferred securities to institutional investors. Analyst Jeremy Tonet views the 8 percent yield on the securities as an attractive cost of raising capital in the current environment.

With the addressing of near-term financing concerns, investors are now likely to focus on Plains All American’s commercial operations and distribution coverage. The company’s future outperformance will depend on an increase in crude oil prices and the “identification of a clear inflection point for US crude oil production,” Tonet said, while adding that there is limited visibility into both the factors.

Plains All American expects its 4Q15 results to be negatively impacted by warm weather conditions in certain regions. The company has reduced the top end of its guidance range for 2015 and now expects to post adjusted EBITDA in the $2.17-$2.19 billion range.

The company has guided to 2016 adjusted EBITDA of around $2.3 billion, up 4-5 percent versus the 2015 guidance, with contributions from fee-based projects offsetting the expected decline in Supply & Logistics.