Credit Suisse Analysts Surprised By Price Rally In Plains All American Shares

In a bid to reduce costs, Plains All American Pipeline, L.P. PAA announced that it had entered into a simplification transaction with Plains GP Holdings LP PAGP. The rally in shares following the announcement comes as a surprise, Credit Suisse’s John Edwards said in a report. He maintained Neutral ratings on both the stocks.

Price Target Changes

The price target for Plains All American Pipeline has been raised from $26 to $32, while that for Plains GP Holdings has been raised from $11 to $12.

Rally Post Simplification Announcement

Plains All American Pipeline’s units climbed 10.63 percent, to $29.65, while Plains GP Holdings rose nearly 12 percent to $11. The rally appears “excessive,” since shares had already reached near fair value in anticipation of the announcement, analyst John Edwards noted. He added, “So we believe there was more to the rally than a mere short squeeze.”

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Raising Estimates

Management indicated that Plains All American Pipeline now had “more levers to pull” than previously, while adding that the model would likely show “the dynamic nature of the changing markets and the growing cash flow that we have.” Edwards raised the EPS estimates for FY1, FY2 and FY3 from $1.61 to $1.78, from $2.30 to $2.37 and from $1.99 to $2.65, respectively.

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