Plains All American (PAA) Up 23.3% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Plains All American Pipeline (PAA). Shares have added about 23.3% in that time frame, outperforming 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 Q3 Earnings Beat Mark, Revenues Lag

Plains All American Pipeline, L.P.  reported third-quarter 2020 adjusted net income of 46 cents per unit, which outpaced the Zacks Consensus Estimate of 32 cents by 43.8%. However, the bottom line declined 12% from the year-ago quarter’s figure.

In the quarter under review, the partnership reported GAAP net income of 13 cents per unit, down 76% from 55 cents earned in the year-ago quarter.

Total Revenues

Total revenues of $5.8 billion missed the Zacks Consensus Estimate of $5.9 billion by 1.4%. Further, the top line dropped 26.6% from $7.9 billion reported a year ago.

Highlights of the Release

In the quarter under review, Plains All American’s total costs and expenses were $5,580 million, down 24.5% year over year. This reduction was owing to lower purchases and related costs, field operating costs as well as general and administrative expenses.  The firm’s operating income dropped to $253 million from $492 million in the prior-year quarter.

Total adjusted EBTIDA (Non-GAAP) for the quarter was $682 million, down 7% from the year-ago quarter.

Interest expenses increased 4.6% year over year to $113 million.

Segmental Performance

In the Transportation segment, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $444 million decreased 3.9% from the year-ago quarter’s figure, primarily due to contracted tariff volumes in multiple regions caused by soft crude oil prices, reduced drilling and completion activity and compressed regional basis differentials.

In the Facilities segment, adjusted EBITDA summed $176 million, up 1.7% from the year-ago quarter’s reported figure. This uptrend was primarily driven by operational cost savings and an expanded capacity at certain Mid-Continent and Gulf Coast crude oil storage terminals.

The Supply and Logistics segment reported adjusted EBITDA of $61 million, which tumbled 33.7% from the year-ago quarter’s figure of $92 million. This downtrend was primarily caused by less favorable crude oil differentials in both Permian Basin and Canada.

Financial Update

As of Sep 30, 2020, current assets were $3,405 million compared with $4,612 million at2019 end.

As of Sep 30, 2020, Plains All American had a long-term debt of $9,381 million compared with $9,187 million on Dec 31, 2019.

As of the same date, its long-term debt-to-total book capitalization was 49%, up from 41% at the end of 2019.

Guidance

Plains All American raised its 2020 adjusted net income expectation to $1.59 per unit from its previous estimate of $1.49. The partnership also lifted its 2020 adjusted EBITDA expectation by 3% to $2,585 million. Further, it provided an estimate for 2021 adjusted EBITDA of $2.2 billion.

Plains All American expects its 2020 expansion capital spending to be $950 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -10.56% due to these changes.

VGM Scores

Currently, Plains All American has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. 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. It's no surprise Plains All American has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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