We have upgraded our recommendation on
Plains All American Pipeline L.P.
(
PAA
) to Outperform from Neutral, driven by its strong crude oil
pipelines and storage asset-portfolio in prospective oil
producing areas. In addition, the partnership intends to deploy
over $1 billion in its numerous organic growth projects through
2013, which subsequently will enable Plains All American Pipeline
to strengthen and expand its existing operations.
The partnership's collection of crude oil pipelines and storage
assets are located in well-established oil producing regions,
which provide services to major U.S. refineries and covers
important distribution markets. We know that its crude oil
gathering and transportation activities will generate fee-based
revenue, resulting in steady and low-risk earnings.
On the flip side, we know that Plains All American Pipeline's
cash inflow primarily depends on transportation of hydrocarbon. A
decline in hydrocarbon volumes due to lesser demand, stringent
regulations related to hydrocarbon transportation, and natural
calamity may cause a decline in the partnership's future cash
flows. Secondly, as Plains All American Pipeline generates a key
part of its revenue from low-risk fee-based activities; it may be
exposed to commodity risks, which are involved in the purchase of
crude oil through the third-party tankers.
On a positive note, Plains All American Pipeline continues to
increase its internal operational efficiencies along with steady
investments in infrastructural development activities. In the
first nine months of 2012, the partnership's capital expenditure
was $2.2 billion for several projects, including building a new
condensate stabilization facility, increasing its gathering
system and lots more.
Plains All American Pipeline's peer
Enterprise Products Partners L.P.
(
EPD
) recently completed another natural gas liquids fractionator at
its Mont Belvieu, Texas complex. We believe stable infrastructure
development activities will enable these types of entities to
ensure a steady stream of future cash generation.
Houston, Texas-based Plains All American Pipeline, L.P. owns
assets strategically located in well-established oil producing
regions, catering to major U.S. refinery and distribution
markets. With a market capitalization of $15.48 billion, the
partnership has 3,800 full-time employees and currently has a
short-term Zacks #3 Rank (Hold rating).
ENTERPRISE PROD (EPD): Free Stock Analysis
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PLAINS ALL AMER (PAA): Free Stock Analysis
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