What Drove Plains All American Pipeline’s Earnings Growth in 3Q17
Earnings in 3Q17
Plains All American Pipelines (PAA), Plains GP Holdings’ (PAGP) MLP subsidiary, posted 13.6% and 8.3% YoY revenue and EBITDA (earnings before interest, tax, depreciation, and amortization) growth in 3Q17. However, the partnership saw a steep 538-basis-point YoY contraction in its EBITDA margin, to 3.3%.
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Plains All American Pipeline’s strong 3Q17 earnings growth was driven by strong throughput volumes from the Permian Basin and higher NGL (natural gas liquid) volumes. This growth was partially offset by lower crude-by-rail activity, asset sales, and weak performance in its Supply and Logistics segment. The segment posted a $39 million fall in adjusted EBITDA during the recent quarter, “due to continued competitive pressures, margin compression, and reduced arbitrage opportunities,” as noted in the company’s 3Q17 earnings release.
Distribution in 3Q17
Plains All American Pipeline declared a distribution of $0.30 per unit in 3Q17, consistent with its second distribution cut announced earlier. PAA’s 3Q17 distribution represents a 45% reduction from 3Q16. Based on the recent distribution, PAA is trading at a distribution yield of 5.6%.
Of the analysts covering Plains All American Pipeline, 52.2% had recommended “buy” and the remaining 47.8% had recommended “hold” as of November 8, 2017. Seaport Global initiated coverage on PAA with a “neutral” rating, which is equivalent to “hold.” Overall, PAA has seen six rating updates in the past three months—three upgrades, two downgrades, and one initiation of coverage. PAA’s average target price of $24.10 implies an upside potential of 13.0% based on its current price.