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Why Is Plains All American (PAA) Down 1.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Plains All American Pipeline (PAA - Free Report) . Shares have lost about 1.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Plains All American due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Plains All American Q2 Earnings Beat, Revenues Miss

Plains All American Pipeline, L.P. reported second-quarter 2018 adjusted earnings of 38 cents per unit, beating the Zacks Consensus Estimate of 23 cents by 65.2%. The bottom line also surged 81% from 21 cents in the year-ago period.

In the quarter under review, the firm reported GAAP earnings of 7 cents compared with 21 cents in the prior-year period.

Total Revenues

In the second quarter, the partnership reported total revenues of $8,080 million, missing the Zacks Consensus Estimate of $8,182 million by 12.95%.

Quarterly revenues were up 33% from $6,078 million in the year-earlier quarter. The top line improved on the back of better performance in the Transportation segment.

Segment Performance

In the Transportation segment, adjusted EBITDA of $360 million increased 21% from the year-ago quarter’s tally, courtesy of expanded volume of Permian Basin systems and contributions from Eagle Ford JV system. However, the upside was offset by the sale of assets in the Rocky Mountain and Central regions.

In the Facilities segment, adjusted EBITDA of $171 million declined 5% from the year-ago quarter. This downside was caused by the impact of asset sales.

The company incurred adjusted EBITDA loss of $26 million in the Supply and Logistics segment.

Highlights of the Release

In the quarter under consideration, Plains All American’s total cost and expenses were $7,992 million, up 37.3% year over year from $5,821 million. The uptick can be primarily attributed to higher purchases and related costs. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $506 million, up 12.2% year over year.

Interest expenses decreased 12.5% year over year to $111 million.

The partnership’s operating income plunged 68% to $88 million from $275 million in the comparable quarter last year.

Financial Update

As of Jun 30, 2018, current assets were $3,852 million compared with $4,000 million as of Dec 31, 2017.

As of Jun 30, 2018, Plains All American had long-term debt of $8,966 million compared with $9,183 million as of Dec 31, 2017. The total long-term debt to total book capitalization ratio was 45%, down from 46% at the end of 2017.

Guidance

Plains All American increased 2018 adjusted EBITDA guidance to $2,400 million.

Expected adjusted EBITDA in the Transportation, Facilities and Supply & Logistics segment are $1,535 million, $690 million and $175 million, respectively.

The partnership expects expansion capital to be $1,950 million, up from $1,135 million invested in 2017.

Plains All American continues to expect 14-15% fee-based Segment Adjusted EBITDA growth in 2019.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 8.05% due to these changes.

VGM Scores

Currently, Plains All American has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Plains All American has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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