Back to top

Analyst Blog

On January 10, 2013, we downgraded our recommendation on natural oil and gas pipeline operator, Plains All American Pipeline, L.P. (PAA - Analyst Report), to Neutral from Outperform. The partnership currently has a short-term Zacks Rank #3 (Hold).

Why the Downgrade?

The partnership’s several negative factors including commodity price volatility, strict guidelines, uncertainty in global capital and credit markets, and commodity risks in its Supply and Logistics segment due to dependence on third-party service-providers drive us to downgrade our recommendation on the stock.

Effects of these negative factors have also been reflected on the Zacks Consensus Estimates. As per the estimates, the partnership’s fourth-quarter 2012 and first-quarter 2013 earnings per unit were 67 cents and 61 cents, respectively, which were lower than the year-ago figures.

Cause for Concern

Plains All American’s cash inflow primarily depends on transportation of hydrocarbon through its network of pipelines. The reduction in demand, stringent environmental and other regulations related to hydrocarbon transportation, could ultimately lower the volumes transported through its pipelines lead to a decline in the partnership’s future cash flow.

Plains All American obtains a major part of revenue from its low-risk fee-based activities. However, the partnership may be exposed to commodity risk, which is involved with the purchase of crude oil that is carried on third-party tankers. Though it re-sells oil and locks in profit margins, this act involves payment of collateral for hedges based on the market price of crude. Therefore, volatility in crude oil pricing may negatively impact Plains All American’s volumes and margins in its logistics and marketing businesses.

In addition, global capital and credit markets have been very volatile and disruptive over the past couple of years due to economic downturn. Plains All American’s ability to grow could be constrained in the absence of regular access to the capital and credit markets as the partnership relies heavily on these markets to finance its potential acquisitions and other growth opportunities.

However, the partnership’s well-positioned crude oil pipelines and storage asset-portfolio in prospective oil producing areas may partially mitigate these negatives in the future.

Other Stocks to Consider     

Besides Plains All American Pipeline, L.P., another energy-pipeline provider Boardwalk Pipeline Partners, LP (BWP - Snapshot Report) is currently performing well and currently carries a short-term Zacks Rank #1 (Strong Buy). Buckeye Partners LP (BPL - Analyst Report), another peer of the partnership, currently has a short-term Zacks Rank #3 (Hold).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%