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Why Is Plains All American (PAA) Down 8% 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 8% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Plains All American Q3 Earnings Beat, Sales Down Y/Y

Plains All American Pipeline, L.P.  reported third-quarter 2019 adjusted earnings of 52 cents per unit, beating the Zacks Consensus Estimate of 39 cents by 33.33%. Moreover, the bottom line improved 20.9% from the year-ago quarter on increased Permian Basin Systems volumes.

In the quarter under review, the partnership reported GAAP earnings of 55 cents per unit, down from the year-ago figure of 87 cents.

Total Revenues

Total revenues in the third quarter amounted to $7,886 million, surpassing the Zacks Consensus Estimate of $7,880 million by 0.1%. However, revenues declined 10.3% from $8,792 million a year ago.

Segmental Performance

In the Transportation segment, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $462 million increased 19% from the year-ago quarter, courtesy of expanded volumes in Permian Basin systems along with the start-up of Sunrise II and Cactus II pipeline systems in fourth-quarter 2018 and third quarter of 2019, respectively. Performance in the central region pipelines also contributed to the strong performance.

In the Facilities segment, adjusted EBITDA of $173 million remained flat with the year-ago reported figure.

The Supply and Logistics segment reported adjusted EBITDA of $92 million, which increased 23% from the year-ago $75 million. The improvement was backed by favourable crude oil differentials in the Permian Basin, partially offset by lower NGL margins.

Highlights of the Release

In the quarter under review, Plains All American’s total costs and expenses were $7,394 million, down 10.9% year over year. The contraction was due to lower purchases and related costs as well as a decline in field operating costs.

Interest expenses declined 1.8% year over year to $108 million.

Its operating income dropped marginally to $492 million from $493 million in the prior-year quarter.

Financial Update

As of Sep 30, 2019, current assets were $4,676 million compared with $3,533 million on Dec 31, 2018.

As of Sep 30, 2019, Plains All American had long-term debt of $9,173 million compared with $9,143 million as on Dec 31, 2018.

As of the same date, its long-term debt-to-total-book capitalization ratio was 41%, down from 43% at the end of 2018.

Guidance

Plains All American now expects 2019 earnings of $2.35 per unit, up from previous expectation of $2.25. The partnership now expects 2019 adjusted EBITDA of $3,075 million, up from $2,975 million expected earlier.

Plains All American lowered its 2019 expansion capital guidance to $1,350 million.



 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Plains All American has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. 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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