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Why Is Plains All American (PAA) Down 3.9% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Plains All American Pipeline (PAA). Shares have lost about 3.9% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Plains All American Q1 Earnings Beat, Guidance Up

Plains All American Pipeline, L.P.  reported first-quarter 2019 adjusted earnings of 69 cents per unit, beating the Zacks Consensus Estimate of 59 cents by 16.9%. Moreover, the bottom line soared 91.7% 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 $1.20 per unit, up from the year-earlier figure of 33 cents.

Total Revenues

Total revenues in the first quarter amounted to $8,375 million, lagging the Zacks Consensus Estimate of $8,948 million by 6.4%. Revenues also dropped 0.3% from $8,398 million in the prior-year period.

Segmental Performance

In the Transportation segment, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $399 million increased 19.1% from the year-ago period, courtesy of expanded volumes in Permian Basin systems and the start-up of its Sunrise II pipeline in fourth-quarter 2018. Pipelines in the central region also contributed to the strong performance.

In the Facilities segment, adjusted EBITDA of $184 million was almost in line with the year-ago figure of $185 million.

The Supply and Logistics segment reported adjusted EBITDA of $278 million, up a whopping 286% from the comparable period last year. This improvement was due to favorable crude oil differentials and improved NGL margins.

Highlights of the Release

In the quarter under review, Plains All American’s total costs and expenses were $7,661 million, down 4.4% year over year. This decline in total expenses was due to lower purchases and related costs, as well as a decline in general and administrative expenses.

Interest expenses declined 4.7% year over year to $101 million.

The partnership’s operating income grew significantly to $714 million from $381 million in the prior-year quarter.

Financial Update

As of Mar 31, 2019, current assets were $4,247 million compared with $3,533 million on Dec 31, 2018.

As of Mar 31, 2019, Plains All American had a long-term debt of $9,177 million compared with $9,143 million on Dec 31, 2018.

As of the same date, its long-term debt to total book capitalization ratio was 42%, down from 46% at the end of 2018.

Guidance

Plains All American revised its 2019 earnings guidance to $2.10 from prior expectation of $2.03 per unit. The partnership now expects full-year 2019 adjusted EBITDA to be $2,850 million, up from $2,750 million expected earlier.

The partnership reiterated its 2019 adjusted EBITDA guidance for Transportation and Facilities. On the contrary, the company increased its view for the Supply & Logistics segment to $450 million from prior projection of $350 million.

Plains All American also raised its 2019 capital expenditure guidance to $1,350 million from earlier expectation of $1,100 million.

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 great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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 #2 (Buy). We expect an above average return from the stock in the next few months.



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