Plains All American (PAA) Rides on JVs, Debt Reduction Plans
Plains All American Pipeline, L.P. PAA has been gaining from steady investments in regulated infrastructure. The firm’s debt reduction initiatives, joint ventures and asset divestitures will further drive its performance.
However, this Zacks Rank #3 (Hold) firm faces risks related to excess pipeline capacity in some regions, which might lower the demand for its midstream services.
Tailwinds
Plains All American maintains a systematic capital investment strategy to expand its operations through organic growth initiatives. It currently has some new projects in the resource-rich regions. For 2023, Plains All American projects capital investment of $325 million and a maintenance capital of $195 million. The firm is currently focusing on smaller projects to improve returns across its system.
PAA completed the Plains Oryx Permian JV, and is presently working on integration of the system and capturing synergies from the same. In July 2023, Permian JV acquired the remaining 43% non-operated interest in the OMOG JV from Diamondback Energy for $225 million or approximately $145 million net to PAA's 65% interest. Plains All American now owns 100% of OMOG and its subsidiaries. This transaction was funded with excess free-cash flow.
The firm continues to enjoy a favorable financial position. It has enough liquidity to meet operating, investing and financing requirements. It expects free cash flow of $1.6 billion in 2023. Of this amount, $600 million is for free cash flow after distributions available for net-debt reduction.
Headwinds
Plains All American’s operations are subject to extensive federal, state and local regulations, managing transportation and processing of materials, thereby protecting the environment and wildlife.
Hydraulic fracturing is an important and common practice that is widely used for the production of hydrocarbons from unconventional geological formations in the United States. Legislation and regulatory initiatives relating to hydraulic fracturing could reduce domestic production of crude oil and natural gas. This, in turn, might lower the demand for midstream services provided by the partnership.
Stocks to Consider
Some better-ranked stocks for investors interested in the sector are TXO Partners LP TXO, carrying a Zacks Rank #2 (Buy), and Constellation Energy Corporation CEG and Nextracker Inc. NXT, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TXO’s 2023 earnings implies a year-over-year increase of 300%. The same for sales implies year-over-year growth of 51.2%.
CEG’s long-term (three to five years) earnings growth rate is 23.3%. The consensus estimate for 2023 earnings per share (EPS) implies a year-over-year increase of 1,206.1%.
NXT’s long-term earnings growth rate is 37.6%. The consensus mark for fiscal 2024 EPS implies a year-over-year improvement of 512.5%.
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Plains All American Pipeline, L.P. (PAA) : Free Stock Analysis Report
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