On Tuesday, UBS updated its outlook on shares of Plains All American (NASDAQ:PAA), increasing the price target to $22.00 from the previous $21.00, while keeping a Buy rating on the stock. The firm anticipates a stronger performance from the company for the upcoming quarter compared to market expectations.
The UBS analyst projects that the Crude business segment will report better than anticipated results. Although a seasonal downtrend is expected in the Natural Gas Liquids (NGL) segment due to strong frac spreads, the decline should be less severe than initially predicted, aided by the pricing dynamics between butane and isobutane.
The analyst also noted that the commencement of operations of the Trans Mountain Expansion (TMX) project will not significantly impact Plains All American's performance. Moreover, a reduction in operating expenses was highlighted as a major positive development for the company.
Plains All American's financial position is considered favorable within the Midstream sector, particularly due to its high Free Cash Flow (FCF) yield of 15.9% and a dividend yield of 7.7%. These factors contribute to the firm's positive stance on the stock.
In line with the revised price target for Plains All American, UBS also adjusted the price target for Plains GP Holdings (NASDAQ:PAGP) to $23.00 from $22.00. This change is directly related to the updated valuation of Plains All American, as the price target for Plains GP Holdings is derived from that of Plains All American. The valuation is based on a constant 9.3x 2026 estimated EV/EBITDA and a Dividend Discount Model (DDM) of $22.00.
In other recent news, Plains All American Pipeline, L.P. (PAA) reported a robust first-quarter performance with an adjusted EBITDA of $718 million, exceeding both RBC Capital's and consensus estimates.
The company also confirmed its financial guidance for 2024, maintaining its outlook for adjusted EBITDA. Citi, maintaining its neutral stance on PAA, suggested that the company's EBITDA may surpass average Wall Street estimates, potentially leading to stronger than anticipated results for upcoming quarters.
RBC Capital Markets responded to these developments by adjusting its price target for Plains All American shares, increasing it to $18 from the previous $17, while maintaining a Sector Perform rating. The firm's revised price target is influenced by Plains All American's progress in re-contracting efforts, which are expected to address concerns regarding cash flows within the crude oil segment for the year 2026.
Furthermore, Plains All American has been making noteworthy strides in its financial performance and strategic developments. These include strategic acquisitions, such as an additional 10% in Saddlehorn Pipeline Company and Mid-Con terminal asset for $110 million.
The company also reported increased contract volumes in its Permian long-haul portfolio. These recent developments reflect Plains All American's commitment to capital discipline, robust free cash flow generation, and consistent returns to investors.
InvestingPro Insights
Following UBS's updated outlook on Plains All American (NASDAQ:PAA), the real-time data from InvestingPro provides a deeper dive into the company's financial health and market performance. With a robust market capitalization of $12.92 billion, Plains All American shows a P/E ratio of 15.74, marginally increasing to 15.96 when adjusted for the last twelve months as of Q1 2024. These metrics underscore the company's valuation in the current market.
The revenue data reveals a challenging environment, with a -13.62% decline in the last twelve months as of Q1 2024, and a -2.8% quarterly dip in Q1 2024. Despite this, Plains All American's dividend yield stands at an attractive 7.04%, paired with a notable dividend growth of 18.69% during the same period. Investors may find comfort in the company's ability to maintain a strong dividend amidst revenue pressures.
InvestingPro Tips highlight Plains All American's impressive year-to-date price total return of 23.57% and a strong 1-year price total return of 37.63%, indicating robust investor confidence. Moreover, the fair value estimates from analysts and InvestingPro suggest a potential upside, with analyst targets at $20.00 and InvestingPro's own fair value calculation at $15.84.
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