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Plains All American Gains from Asset Sales, Risks Persist
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On Aug 19, 2016, we issued an updated research report on Plains All American Pipeline, L.P. (PAA - Free Report) . Plains All American Pipeline’s systematic capital investment and strategy to expand operations via acquisitions will allow it to serve customers more efficiently. Nonetheless, increasingly stringent regulations and completion of ongoing expansion projects within time and budget are major obstacles.
Recently, Plains All American reported second-quarter 2016 adjusted loss of 12 cents per unit while the Zacks Consensus Estimate was earnings of 3 cents. On the other hand, the partnership reported total revenue of $4,950 million, which beat the Zacks Consensus Estimate of $4,592 million by 7.8%. However, revenues plunged around 25.7% year over year primarily due to lower contribution from the Supply & Logistics segment.
Plains All American Pipeline maintains a systematic capital investment strategy to expand its operations through organic growth initiatives. It plans to invest nearly $1.4 billion in expansion programs this year. The partnership currently has a deep pipeline of new projects in resource-rich regions.
Moreover, Plains All American Pipeline has been pursuing a divestment strategy to utilize the proceeds to focus on core areas. The partnership closed asset sales worth $130 million in total, including the spin-off of its 50% stake in Cheyenne Pipeline LLC and the divestiture of the Gulf Coast CAM pipeline system, in the second quarter of 2016. It anticipates non-core assets divestment proceeds in the range of $500–$600 million for 2016, having closed transactions worth $480 million year to date.
On the flip side, Plains All American Pipeline’s operations are subject to extensive federal, state and local regulations managing transportation and processing of materials, and protecting the environment. While the execution of all of these regulations increases the partnership’s operating costs, violating them would pose risks of administrative, civil and criminal penalties.
Also, many upstream players are currently entering the midstream business by forming MLPs and upgrading infrastructure. If this trend persists, Plains All American will be up against tough competition as they generate revenues from exploration and production companies by providing transportation services.
Zacks Rank & Key Picks
Plains All American Pipeline carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space include Enbridge Energy Partners, L.P. with a Zacks Rank #1 (Strong Buy) and Archrock Partners, L.P. and CONE Midstream Partners LP , both carrying a Zacks Rank #2 (Buy).
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Plains All American Gains from Asset Sales, Risks Persist
On Aug 19, 2016, we issued an updated research report on Plains All American Pipeline, L.P. (PAA - Free Report) . Plains All American Pipeline’s systematic capital investment and strategy to expand operations via acquisitions will allow it to serve customers more efficiently. Nonetheless, increasingly stringent regulations and completion of ongoing expansion projects within time and budget are major obstacles.
Recently, Plains All American reported second-quarter 2016 adjusted loss of 12 cents per unit while the Zacks Consensus Estimate was earnings of 3 cents. On the other hand, the partnership reported total revenue of $4,950 million, which beat the Zacks Consensus Estimate of $4,592 million by 7.8%. However, revenues plunged around 25.7% year over year primarily due to lower contribution from the Supply & Logistics segment.
Plains All American Pipeline maintains a systematic capital investment strategy to expand its operations through organic growth initiatives. It plans to invest nearly $1.4 billion in expansion programs this year. The partnership currently has a deep pipeline of new projects in resource-rich regions.
Moreover, Plains All American Pipeline has been pursuing a divestment strategy to utilize the proceeds to focus on core areas. The partnership closed asset sales worth $130 million in total, including the spin-off of its 50% stake in Cheyenne Pipeline LLC and the divestiture of the Gulf Coast CAM pipeline system, in the second quarter of 2016. It anticipates non-core assets divestment proceeds in the range of $500–$600 million for 2016, having closed transactions worth $480 million year to date.
PLAINS ALL AMER Price
PLAINS ALL AMER Price | PLAINS ALL AMER Quote
On the flip side, Plains All American Pipeline’s operations are subject to extensive federal, state and local regulations managing transportation and processing of materials, and protecting the environment. While the execution of all of these regulations increases the partnership’s operating costs, violating them would pose risks of administrative, civil and criminal penalties.
Also, many upstream players are currently entering the midstream business by forming MLPs and upgrading infrastructure. If this trend persists, Plains All American will be up against tough competition as they generate revenues from exploration and production companies by providing transportation services.
Zacks Rank & Key Picks
Plains All American Pipeline carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space include Enbridge Energy Partners, L.P. with a Zacks Rank #1 (Strong Buy) and Archrock Partners, L.P. and CONE Midstream Partners LP , both carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>