We reiterate our Outperform recommendation on
Plains All American Pipeline L.P.
(
PAA
) given its steady increase in cash distribution, strategic
acquisitions, infrastructure expansion and a solid financial
position. We believe that the partnership will face challenges from
its Supply & Logistics segment with soft numbers in the second
and third quarters following the historical trend.
We know that Plains All American Pipeline generates a major part
of its revenue from low-risk fee-based activities. The partnership
is often exposed to commodity risks due to delay in purchase of
crude oil carried by third-party tankers. Although the partnership
utilizes collaterals for hedges based on the market price of crude,
volatility in crude oil pricing and market structures may
negatively impact the partnership's financial performance.
Plains All American Pipeline's portfolio of crude oil pipelines
and storage assets are strategically located in well-established
oil producing regions that serve major U.S. refinery and
distribution markets. We believe that the partnership's positional
advantage will fuel its future performance.
At the same time, Plains All American Pipeline continues to
increase its operations both internally and through strategic
acquisitions. Under its organic growth program, the partnership
constructed and expanded its pipeline systems, crude oil storage,
and terminal and natural gas storage facilities. As part of its
acquisition-oriented growth strategy, the partnership recently
acquired
BP Plc
.'s (
BP
) Canadian assets and expects a 10% production volume increase over
first quarter 2012 volume.
During the partnership's first quarter 2012 earnings release,
Plains All American Pipeline increased its annual adjusted EBITDA
guidance by $150 million. The Zacks Consensus Estimate for the
partnership's second quarter and full year 2012 earnings are
currently pegged at $1.66 per unit and $5.16 per unit,
respectively.
Plains All American Pipeline L.P. currently retains a Zacks #1
Rank, which translates into a short-term Strong Buy rating.
Houston, Texas-based Plains All American Pipeline owns assets
strategically located in well-established oil producing regions,
catering to major U.S. refinery and distribution markets. Other
than organic growth opportunities, the partnership also relies on
acquisitions to spur growth. The partnership competes with
Enterprise Products Partners L.P.
(
EPD
).
BP PLC (BP): Free Stock Analysis Report
ENTERPRISE PROD (EPD): Free Stock Analysis
Report
PLAINS ALL AMER (PAA): Free Stock Analysis
Report
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