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Plains All American (PAA) Up 1.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Newmont (NEM) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

A month has gone by since the last earnings report for Plains All American Pipeline (PAA). Shares have added about 1.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Plains All American due for a pullback? 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 Q4 Earnings Beat, Revenues Lag

Plains All American Pipeline, L.P.  reported fourth-quarter 2018 adjusted earnings of 80 cents per unit, beating the Zacks Consensus Estimate of 69 cents by 15.9%. Moreover, the bottom line soared 105.1% from the year-ago period. The improvement was due to higher fee-based earnings and growth in Permian volumes.

In the quarter under review, the partnership reported GAAP earnings of $1.38 per unit, up from the year-earlier figure of 19 cents.

Total Revenues

In the fourth quarter, the firm’s total revenues amounted to $8,786 million, lagging the Zacks Consensus Estimate of $9,123 million by 3.7%.

However, quarterly revenues increased 15.5% from $7,605 million in the prior-year period.

Segment Performance

In the Transportation segment, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $425 million increased 20% from the year-ago period, courtesy of expanded volumes in Permian Basin systems, benefits from the Diamond pipeline and the start-up of its Sunrise II pipeline in the fourth quarter of 2018.

In the Facilities segment, adjusted EBITDA of $181 million declined 1.63% from the year-ago figure. This downside was caused by the impact of asset sales and lower revenues from its NGL fractionation facilities.

The company reported adjusted EBITDA of $342 million in the Supply and Logistics segment compared with $92 million in the comparable period last year. This improvement was due to the partnership’s ability to capture more favorable crude oil differentials in the United States and Canada.

Highlights of the Release

In the quarter under review, Plains All American’s total costs and expenses were $7,471 million, up 1.7% year over year. This increase can be primarily attributed to increase in purchases and related costs, coupled with field operating cost. Adjusted EBITDA came in at $949 million, surging 50.4% year over year.

Interest expenses declined 13.3% year over year to $104 million.

The partnership’s operating income grew significantly to $1,315 million from $261 million in the prior-year quarter.

Financial Update

As of Dec 31, 2018, current assets were $3,533 million compared with $4,000 million recorded in the corresponding period of 2017.

As of Dec 31, 2018, Plains All American had a long-term debt of $9,143 million compared with $9,183 million on Dec 31, 2017. The long-term debt to total book capitalization ratio was 43%, down from 46% at the end of 2017.

Guidance

Plains All American expects full-year 2019 adjusted earnings to be $2.03 per unit. The partnership expects full-year 2019 adjusted EBITDA to be $2,750 million.

Adjusted EBITDA in the Transportation, Facilities and Supply & Logistics segment is expected to be $1,735 million, $665 million and $350 million, respectively.

The firm expects capital expenditure to be $1,100 million in 2019.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Plains All American has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. 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 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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