Why Is Plains All American (PAA) Up 34.8% Since Last Earnings Report?

A month has gone by since the last earnings report for Plains All American Pipeline (PAA). Shares have added about 34.8% 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 the most recent earnings report in order to get a better handle on the important drivers.

Plains All American Q1 Earnings Beat Estimates, Down Y/Y

Plains All American Pipeline, L.P.  reported first-quarter 2020 adjusted earnings of 55 cents per unit, which beat the Zacks Consensus Estimate of 48 cents by 14.6%. However, the bottom line was down 20% from the year-ago quarter’s reported figure.

In the quarter under review, the partnership incurred GAAP loss of $3.98 per unit compared with $1.20 earnings in the year-ago quarter.

Total Revenues

Total revenues in the first quarter amounted to $8,269 million, which missed the Zacks Consensus Estimate of $8,830 million by 6.35%. Revenues declined 1.2% from $8,375 million reported in the year-ago quarter.

Segmental Performance

In the Transportation segment, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $442 million increased 11% from the year-ago quarter’s figure, primarily driven by higher volumes in its Permian Basin systems, including the Cactus II pipeline, which came into service in August 2019.

In the Facilities segment, adjusted EBITDA amounted to $210 million. The figure was up 14% from the year-ago quarter’s reported figure. The upside was primarily driven by the collection of a deficiency payment on a multi-year contract.

The Supply and Logistics segment reported adjusted EBITDA of $141 million, which fell 49% from the year-ago quarter’s figure of $278 million. The decline was primarily caused by less favorable crude oil differentials and NGL margins.

Highlights of the Release

In the quarter under review, Plains All American’s total costs and expenses were $11,042 million, up 44.1% year over year. The increase was caused by higher purchases and related costs, depreciation and amortization expenses, losses on asset sales and asset impairments as well as goodwill impairment losses. Consequently, the firm’s operating income dropped to $2,773 million from $714 million in the prior-year quarter.

Interest expenses increased 7% year over year to $108 million.

Financial Update

As of Mar 31, 2020, current assets were $3,071 million compared with $4,612 million in the corresponding period of 2019.

As of Mar 31, 2020, Plains All American had long-term debt of $9,418 million compared with $9,187 million in the comparable period of 2019.

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

Guidance

Plains All American now expects 2020 earnings to be $1.44 per unit. The partnership expects 2020 adjusted EBITDA to be $2,425 million.

Plains All American expects 2020 expansion capital to be $1,100 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -26.97% due to these changes.

VGM Scores

At this time, Plains All American has a great Growth Score of A, though it is lagging a lot 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 quintile 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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