Plains Retained at Outperform

We reiterate our Outperform recommendation on Plains All American Pipeline L.P. ( PAA - Analyst Report ) 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 - Analyst Report ) 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 - Analyst Report ) .