On January 10, 2013, we downgraded our recommendation on
natural oil and gas pipeline operator,
Plains All American Pipeline, L.P.
), to Neutral from Outperform. The partnership currently has a
short-term Zacks Rank #3 (Hold).
Why the Downgrade?
The partnership's several negative factors including commodity
price volatility, strict guidelines, uncertainty in global
capital and credit markets, and commodity risks in its Supply and
Logistics segment due to dependence on third-party
service-providers drive us to downgrade our recommendation on the
Effects of these negative factors have also been reflected on the
Zacks Consensus Estimates. As per the estimates, the
partnership's fourth-quarter 2012 and first-quarter 2013 earnings
per unit were 67 cents and 61 cents, respectively, which were
lower than the year-ago figures.
Cause for Concern
Plains All American's cash inflow primarily depends on
transportation of hydrocarbon through its network of pipelines.
The reduction in demand, stringent environmental and other
regulations related to hydrocarbon transportation, could
ultimately lower the volumes transported through its pipelines
lead to a decline in the partnership's future cash flow.
Plains All American obtains a major part of revenue from its
low-risk fee-based activities. However, the partnership may be
exposed to commodity risk, which is involved with the purchase of
crude oil that is carried on third-party tankers. Though it
re-sells oil and locks in profit margins, this act involves
payment of collateral for hedges based on the market price of
crude. Therefore, volatility in crude oil pricing may negatively
impact Plains All American's volumes and margins in its logistics
and marketing businesses.
In addition, global capital and credit markets have been very
volatile and disruptive over the past couple of years due to
economic downturn. Plains All American's ability to grow could be
constrained in the absence of regular access to the capital and
credit markets as the partnership relies heavily on these markets
to finance its potential acquisitions and other growth
However, the partnership's well-positioned crude oil pipelines
and storage asset-portfolio in prospective oil producing areas
may partially mitigate these negatives in the future.
Other Stocks to Consider
Besides Plains All American Pipeline, L.P., another
Boardwalk Pipeline Partners, LP
) is currently performing well and currently carries a short-term
Zacks Rank #1 (Strong Buy).
Buckeye Partners LP
), another peer of the partnership, currently has a short-term
Zacks Rank #3 (Hold).
BUCKEYE PARTNRS (BPL): Free Stock Analysis
BOARDWALK PIPLN (BWP): Free Stock Analysis
PLAINS ALL AMER (PAA): Free Stock Analysis
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