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Momentum

Jared Levy

Plains All American Pipeline MLP

PAA

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Plains All American Pipeline (PAA)

By now, most of you know that oil prices have been on the rise and many oil and gas stocks like Plains All American Pipeline have been gaining some serious momentum in the past month or so.  MLPs have been especially attractive to investors because of their eye-catching yields. 

PAA owns and operates a diversified portfolio of assets that play a key role in the movement of U.S. and Canadian energy supplies.  The company handles over 3 million barrels per day of crude oil, refined products and LPG on average through an extensive, strategically located network of assets in select North American producing basins and transportation gateways.

Recently the company reported strong earnings and they expect to continue to deliver exceptional results.

Company Description & Developments
Plains All American Pipeline is a fast growing oil and gas MLP that is one of the largest independent midstream crude oil companies in North America.  They own and operate approximately 16,000 miles of crude oil and refined product pipelines, roughly 90 million barrels of crude oil, refined products, LPG terminalling and storage capacity not to mention control a full complement of truck transportation and injection assets.

A major hub of their business is the Cushing OK terminal they built in 1993 which has been expanded to nine times its original size. Cushing is the delivery point for WTI (West Texas Intermediate Crude) in the US and enables PAA to capitalize on their vast pipeline and storage system.

A major part of PAA’s expansion is through strategic acquisitions within both the oil and natural gas sector.  Their ability to terminal and store these energy sources in conjunction with their supply and logistics activities allow them to capitalize on inefficient energy markets and to address physical market imbalances, mitigate inherent risks and increase margin in the future.

At their last earnings report on February 16th, Plains All American Pipeline not only beat the Zacks Consensus Estimate by 4 cents, but gave a positive outlook for the coming year.  The company is moving forward with strategic asset purchases to expand operations like it did in 2010.   Zacks’ analysts believe that the acquisition of certain BP assets, which should be completed this year, will boost the partnership’s midstream business through additional pipelines, storage capacity, fractionation plants and supply contracts.

Financial Profile
PAA is a large-cap (12.41 billion) company that is trading at about 17 times forward (expectations for next quarter) earnings. Plains All American reported a strong fiscal year with revenues increasing across all segments.  PAA became a Zacks Rank 1 strong buy on January 5th, 2011

Plains All American reported a quarterly revenue increase of 6% at their last earnings report but saw a 16% leap in EPS for the same period.  Annual sales were up 23% compared to (fiscal) FY2010 with total sales of roughly 34.3 billion in FY2011. 

PAA earnings increased from $2.40 in FY2010 to $4.88 in FY2011 and is expected to earn $4.80 in FY2012 according to the Zacks Consensus Estimate. 

Earnings Estimates
Plains’ total revenue for 2011 was $34.28 billion versus $25.89 billion reported in the prior fiscal year, reflecting a growth of 32.4%.  PAA has had a record of strength surprising analysts to the upside 4 quarters in a row at an average of 24%.  Of the 6 analysts who cover PAA, the consensus is for the company to experience negative earnings growth of 8.3% in the current year (FY2012) and increase earnings by roughly 6% in FY2013.  PAA will report Q22012 results on May 9th.

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 90 days ago for the current and next quarters as well as FY2012 and FY2013. 

Market Performance & Technicals
Since hitting a low of $57.02 in October, it has almost been a straight shot up for the MLP.  Recently it made a new 52 week high of $84.48, which is more than 48% higher than its lowest level of 2011.

For now the uptrend continues, driven by the rise in oil prices, which PAA will be closely tied to.  Support levels may come at the 50 and 200 day moving averages of $77.11 and $66.25 respectfully.  

PAA has exceeded the S&P 500’s performance in the past year by 22% and outpaced it by almost 12% in the past 3 months as it climbed higher.   The stock remains in a bullish trend and has momentum behind it; it has led the broad market by about 5% in the past month.    

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

 

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