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Why Is Plains All American (PAA) Down 12.6% Since Last Earnings Report?

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  • PAA

A month has gone by since the last earnings report for Plains All American Pipeline (PAA). Shares have lost about 12.6% 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 drivers.

Plains All American Q3 Earnings Miss, Revenues Beat

Plains All American Pipeline, L.P. reported third-quarter 2021 adjusted earnings of 22 cents per unit, which lagged the Zacks Consensus Estimate by a penny. The bottom line also declined 52% from the year-ago figure.

For the quarter under review, the partnership reported GAAP loss of 15 cents per unit against earnings of 13 cents in the year-ago period.

Total Revenues

Total revenues of $10,776 million surpassed the Zacks Consensus Estimate of $9,282 million by 16.1%. Further, the top line improved 84.8% from $5,833 million reported a year ago.

Highlights of the Release

For the quarter under review, Plains All American’s total costs and expenses were $10,814 million, up 93.8% year over year. This increase was owing to higher purchases and related costs.

Total adjusted EBITDA for the quarter was $519 million, up 23.9% from the year-ago period.

During the quarter, the Transportation segment’s volumes were 6,893 thousand barrels per day (Mbls/d), up 8.7% from 6,340 Mbls/d in the prior-year period. The Supply and Logistics segment’s volumes were 1,369 Mbls/d, up 3.9% from 1,318 Mbls/d in the prior-year period.

Net interest expenses decreased 6.2% year over year to $106 million.

The firm lowered its debt level by $650 million during the quarter and by nearly $1 billion from year-end 2020, which will lower capital servicing costs.

The firm completed the formation of Plains Oryx Permian Basin strategic joint venture and targets JV synergies of $50-$100 million or more.

Segmental Performance

In the Transportation segment, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $427 million decreased 4% from the year-ago figure, primarily due to lower tariffs on certain long-haul volumes, partially offset by an overall increase in tariff volumes.

In the Facilities segment, adjusted EBITDA summed $114 million, down 35% from the year-ago figure. This fall was primarily due to the impact of asset sales and reduced NGL intersegment fee structure based on market conditions.

The Supply and Logistics segment reported adjusted EBITDA of ($23) million against $61 million in third-quarter 2020. The decline was due to contango margins realized in third-quarter 2020, partially offset by reduced NGL intersegment fees.

Financial Update

As of Sep 30, 2021, current assets were $4,847 million compared with $3,665 million at 2020-end.

As of Sep 30, 2021, Plains All American had long-term debt of $8,388 million compared with $9,382 million on Dec 31, 2020. Free cash flow was $1,093 million compared with $73 million in the year-ago period.

As of the same date, its long-term debt-to-total book capitalization was 47%, down from 49% at 2020-end.

Guidance

Plains All American’s 2021 adjusted EBITDA expectation is $2,175 million.

It expects average daily volumes in the Transportation, and Supply and Logistics segments to be 6,250 Mbls/d and 1,475 Mbls/d, respectively.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, 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 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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